FOREX Pivot Points
Forex pivot points are used in calculating information that can be very useful to a Forex trader. There are many tools that a trader can, and should, take advantage of in order to ensure trading success. Here’s an explanation of one of them – Forex pivot points – that shouldn’t be overlooked.
A specific method of technical analysis is used to help traders know when to buy, and when to sell. This method involves examining past prices over a certain period of time, in order to recognize patterns in the fluctuations of the prices. Two important patterns that a trader might look for are the support and resistance levels. These two patterns represent high and low prices levels. When the market price of a currency nears either one of these levels, then it’s a signal that a major price movement may be about to happen. Information like this can be invaluable, and one way that a trader can calculate these two levels is by using Forex pivot points.
Forex pivot points are a part of several different methods used to determine these levels, and the five-point system is one of the most common. The five-point system uses the high, low, and closing price of the previous day, in addition to the two resistance and support levels. Of course, the Forex market is a 24hr market, so traders must decide on which Exchange’s closing price they will use. Most traders will use the 4:00 p.m. closing time of the NYSE.
The next step in determining Forex pivot points is to calculate the high and low, based on the 24hrs of trading prior to the closing time. Then these three prices are averaged to determine the pivot point. Once this has been calculated, the two resistance levels and support levels can be determined.
These two resistance levels and two support levels are the ones that are most widely used Forex pivot points. When you’re viewing a trading data chart they can provide a wealth of information. But what exactly do these levels mean?
The price of an investment will fluctuate over time, and just how much it will fluctuate depends on the volatility of the market. But over time, an up and down pattern will usually develop. The point at which a price is not likely to go any lower is considered a support line. If the chart you’re viewing includes marks for both support and resistance levels, you will usually see the market price bounce off the lower, or support, line, when it nears the price point that it historically never falls below.
However, if you do see the price fall below the support level, this is when you are most likely to see a major downward shift in the market price. This is a classic example of Forex pivot points, and a prepared trader can take advantage of a possibly very lucrative market condition. A similar opportunity exists when market prices go in the other direction, and the ceilings set by resistance levels are breached.
Forex pivot points are a tool used by investors at every level. They’re used by mutual fund managers, professional traders, and even banks, to help them determine the best times for buying and selling. And they’re a tool that you can take advantage of too, to give you an edge in Forex trading.
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