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Pivot Point

The Pivot Point is a level in which the sentiment of the market changes from bullish to bearish or vice versa. If the market breaks this level to the upside, then the sentiment is said to be positive for that day and it is likely to continue its way up. On the other hand, if the price slips under this level, then the sentiment is considered negative, and it is expected to continue its depreciation.

Pivot Points are also expected to provide some kind of support or resistance, and if price can't break any of the associated R or S levels, a possible bounce from it is plausible.

How to Calculate Pivot Points

The Standard Pivot point calculation is quite simple. It requires only three numbers – close, high, and low:

Pivot Point (PP) = (Daily High + Daily Low + Close) / 3

Since the Forex market is a 24/5 market, there is some confusion as to which time to use for the daily market opening and closing. Most forex traders use the 11:59 PM (23:59) GMT for Forex market closing time and 12:00 AM (00:00) GMT for Forex market opening time.

When you get the PP, you can start calculating the further upper and lower pivot points. These are called first, second, third pivot resistance levels, and first, second, third, pivot support levels.

Most of the trading software available today will have a pivot indicator that will calculate these levels for you automatically and plot them on your chart.

There are few basic rules when trading pivot points:

1. Be bearish when the price is below the main pivot point.

2. Be bullish when the price is above the main pivot point.

3. Go long if the price bounces from S1, S2, or S3.

4. Go short if the price bounces from R1, R2, or R3.

How to Use Pivot Point Trading Strategies

Just like normal support and resistance levels, forex traders can choose to trade the bounce or the break of these levels.

Range-bound traders use pivot points