Pivot Points

Pivot Points offer chartists a methodology to determine price direction and then set support and resistance levels. Price direction is determined by looking at the current period's price action relative to the pivot point: starting above or below the pivot point, or crossing it in either direction during trading. The set support and resistance points come into play after price direction has been determined. While originally designed for floor traders, the concepts behind Pivot Points can be applied across various timeframes.



As with all indicators, it is important to confirm Pivot Point signals with other aspects of technical analysis. A bearish candlestick reversal pattern could confirm a reversal at second resistance. Oversold RSI could confirm oversold conditions at second support. An upturn in MACD could be used to confirm a successful support test.

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On a final note, sometimes the second or third support/resistance levels are not seen on the chart. This is simply because their levels exceed the price scale on the right. In other words, they are off the chart.

 

[joeforex]

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[Virgyl]

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[GeekyForex]

What exactly are pivot points and why should you care about them in Forex trading? Well, pivot points are a technical analysis tool used to identify potential support and resistance levels in the market. They are calculated based on the previous day's high, low, and close prices.

To put it simply, pivot points act as significant price levels that can help traders determine when to enter or exit trades. These levels provide valuable insights into market sentiment and can be useful for establishing profit targets or setting stop-loss orders.

» For more setting profit and stop loss targets, see our guide strategies and techniques for using limit orders.

Pivot points consist of several key levels: the central pivot point (PP), which is the average of the previous day's high, low, and close; along with support levels (S1, S2, S3) below the PP, and resistance levels (R1, R2, R3) above it. Traders often pay close attention to these levels as they represent areas where price may reverse or consolidate as is demonstrated below:

One popular strategy involving pivot points is known as "pivoting." This involves monitoring how price reacts around these key levels. If price breaks above a resistance level with conviction, it could indicate an upward trend continuation. Conversely, if price breaks below a support level decisively, it could signal a downward trend continuation.

Using pivot points effectively requires combining this information with other technical indicators such as moving averages or oscillators. By doing so, traders can confirm signals provided by pivot points and increase their chances of making high probability trades.

Learn how to use pivot points in our beginners guide.