Using Forex Pivot Points
Forex pivot points are a great way to establish entry an exit points when trading the Forex market. Basically Forex pivot points establish two levels of support and two levels of resistance during a day’s trading session. If you have trouble picking spots to enter and exit the market or picking spots for your stop loss and take profit orders, then Forex pivot points may be the technical indicator you need to take your trading to the next level.
You can figure out pivot points for any period of time. All you need to know is the high, low, and closing price of your chosen period. Here’s the formula:
Pivot Point= (High+Low+Close)/3
Resistance 1= (Pivot Point x 2) – Low
Resistance 2= Pivot Point + (High – Low)
Support 1= (Pivot Point x 2) – High
Support 2= Pivot Point – (High – Low)
The formulas are easy enough to use, but it can be tedious to do all these little calculations for every currency pair you’re considering. So to make things easier, I’ve included a Forex pivot point calculator in the sidebar of this site. All you have to do is plug in the high, low, and close. Then the calculator will spit out your support and resistance levels. Once you have your support and resistance points, plot them on your graph.
For example, let’s say you’re interested in trading EUR/JPY so you take a look at the previous day’s high, low, and close which are 158.357, 157.211, and 157.755 respectively. Here’s what your pivot points look like for the next day:
EUR/JPY Forex Pivot Points
As you can see, it looks like the price range is staying between the Resistance 1 and Support 1 levels. In this case the channel has roughly $1,141 in profit opportunity in it for every standard lot you purchase. In addition, it only takes about 15 to 20 minutes for the price to complete this move. Not bad for 20 minutes of work.
Of course you shouldn’t use Forex pivot points on their own. Use your favorite technical indicators to confirm. Remember, all Forex pivot points will tell you is where the major support and resistance points are. Like all technical indicators they can (and will) fail on occasion so use the same caution you would when using any other technical indicator.
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Popularity: 28% [?]