Learning about Forex pivot point trading can be an effective trading tool you can use every day to help you make more profitable trades. The use of pivots as a trading strategy has been around for a long time and was originally used by floor traders in the futures market. This gave traders a simple way to figure out where the market was heading during the course of the day with only a few simple calculations.
The pivot level is the area at which the market direction could potentially change and reverse in the opposite direction or take a rest before it continues in the same direction or it might simply just hang around at that level for a while.
By calculating some simple math by taking the previous days high price, low price and close price, you will come out with a series of pivots.
These pivots can be critical support and resistance levels that Forex pivot point traders pay close attention to. These pivot levels are also known as Forex resistance and support levels. Every day the market has an open price, high price, low and a close for the previous day. The Forex market is opened 24 hours but generally use 5pm EST as the open and close.
The reason Forex pivot point trading is very popular is because these pivot levels are predictive as opposed to lagging. You use the information of the previous day to calculate potential turning points for the day you are about to trade. Because so many Forex traders follow pivots, you will often find that the price action reacts at these levels. This gives you an opportunity to trade.
The Forex pivot point trading strategy was formed because the pivot numbers are ‘known’ price levels that are being ‘watched’ and ‘used’ by many other traders, and thus, provides very useful information.
‘Knowing’ that so many Forex traders are watching and using these levels to make trading decisions gives you an advantage, an edge. More traders are designing and developing trading methods and systems around these pivots to get that edge that all Forex traders are looking for. I have traded basically the same way over the last 5 years, using the same basic method and the same basic setups and indicators to trade that method. The biggest addition that I made over the last couple of years is a usage of Forex pivot point trading.
There is another type of pivot that traders look at. A pivot on a chart can also be classified as a high or a low on a particular candle or bar with a significant area where the price has paused. A pivot usually indicates a sign of a reversal or a rest area for price. Some traders usually buy at pivot low when price moves 1 to 2 pips above the high of the middle candle. They may sell at pivot high when price moves 1 to 2 pips below the low of the middle candle.
Forex pivot points are very useful for short-term traders who are looking to get in and out quickly to take advantage of small price movements. Both range-bound traders and breakout traders can use pivots. Range-bound traders use pivot points to identify reversal points. Breakout traders use pivot points to recognize key levels that need to be broken before they can jump in and take the trade as a breakout.
There are many patterns that you can design when your Forex pivot point trading. Although, these pivot points are not 100% guaranteed, nothing in trading ever is. Remember, all you want to do, as a successful Forex trader is to put the odds in your favor.