Forex Pivot PointsForex pivot Points are in general popular tools to trade the markets by, but particularly the Forex markets have been using these tools extensively. Pivot points and Support and Resistance are closely related and as you might know, Support and Resistance are usually made up of past turning points (minor and major) and for example previous day's high and low.
The most popular method for calculating Support and Resistance are sometimes called “Floor Trader's Pivots”. Since they are very common in FOREX trading and you should at least have a look at them. As with everything else, trading with Forex Pivot Points needs experience and is best traded together with another indicator. Forex Pivot Points are calculated as follows: Resistance Level 3: R3 = R2 + yesterday's high – yesterday's low
These formulas should be included on your trading platform. They do not change through-out the day. Weekly, monthly and quarterly pivots can also be calculated by adjusting the above formulas accordingly. Just remember you are using the previous period (week, month etc) to calculate the current period. The longer the period, the more inexact the level. The advantage with Support and Resistance levels are that you have specific target, either for entering or for exiting. Coupled with some other tools, it can be traded successfully. The disadvantage is that you really don't know how price is going to treat the level, if price is going to reach the level (turns just before), touch it, punch through and reverse or if it will just rush right through. Sometimes price punches trough heavily and it looks like it is going to the next level, but instead price reverses strongly. Trading is not an exact science and if you think that price is going to turn at the exact level, you are dreaming. Combine it with two other non-overlapping indicators and you have something worth working with. Go to the next part, Trendlines. Return from Forex Pivot Points to Technical Analysis.
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