Pivot point are a very popular method in forex to determine buy/sell signals. Pivot points are widely used by traders to mark reversal points (where price moves back in the opposite direction).
What is Pivot Point?
The chart is divided into several sections on the pivot point. The midpoint is the pivot points (PP). If the price is above the pivot points, the market is bullish (the market is in an uptrend) and if the price is below the pivot point, the market is bearish (the market is moving downward). R1, R2, and R3 are above the resistance level and pivot point in the forex market (PP). S1, S2, and S3 are below the support level and the Pivot Points(PP).
- pp = pivot point
- s = support
- R = Resistance
How pivot points are calculated:
In case of pivot point:
- High = Yesterday’s price moved to the highest price.
- Low = Yesterday’s price went to the lowest price in the market.
- Close = Market closed at that price yesterday.
How to Calculation Pivot Points?
Now you can find the pivot point by tracing the high, low, and near. Or you can easily extract high, low, and close data with Pivot Points Calculator. Some pivot indicators will show the pivot points on your chart. See the Indicators section for this.
How to trade using pivot points?
In the event of a breakout, the way you trade will work the same way here. If the price crosses the pivot line and closes in that direction, the price usually moves in that direction. See the chart below:
The green spot indicates that the price was initially below the pivot points and has risen above the pivot line from the green spot.
When the pivot line is broken:
it means that the price will start moving in the same way now. The way to trade a breakout is to open a trade-in in that direction immediately after the break. When you open a trade, you set a stop loss right in front of the broken line and the next line will be the technical profit.
See chart above. The business opened at 2.0550 (Green Line) price. The stop loss should be set below the pivot points (red line) at 1.0535. Your technical profit will be approximately R0 of 1.0594.
This trade was only 40 pips. There’s no reason to get too excited. Because they don’t always work. By using it in conjunction with anything else in technical analysis you can be a little more sure that you are not going to make a wrong trade.
Range-bound trading with Pivot Point Indicator :
Range bound trading occurs when the price is trapped between 2 pivot points, i.e. it repeatedly moves between the 2 lines. See the chart below:
The more times the price hits the pivot point but moves back without breaking, the stronger the pivot points becomes. If the price hits the pivot points 5 times a day but does not break through, the pivot point is too strong. But if the price hits the pivot point 1 bar, you can wait for the pivot point to hit 1 more time to trade range-bound.
If you keep looking at a chart and see that the price has hit the pivot point at least 2 times but has moved in the opposite direction without breaking, you may want to consider range-bound trading. “Happy Trading”