HOW TO TRADE FOREX USING PIVOT POINTS

Pivot points could be seen as turning points or points were changes are likely to take place. When you apply this simple definition to the forex trade; pivot points become the points in a price chart or in a price movement were changes are likely to take place. For example, in a bullish market, pivot points will be points were price is likely to meet a resistance and retrace back. We could also see it, as traffic junctions were a driver would stop before proceeding. In this last example, the driver will stop to either proceed further or take another route to his destination. In the case of price movements, price will slow down at a pivot point to either proceed further or change movement. Most times, it is the presence of high impact news that makes prices to break through pivot points.

We have seven pivot points in a price chart. They are:
v Resistance Level 3 (R3)
v Resistance Level 2 (R2)
v Resistance Level 1 (R1)
v Central Pivot Point (PP)
v Support Level 1 (S1)
v Support Level 2 (S2)
v Support Level 3 (S3)

The resistance levels are pivot points in a rising or bullish movement, i.e. those points were prices are likely to retrace. Resistance levels could be seen as ceiling tops or roofs.
The support levels are pivot points in a falling or bearish movement, i.e. those points were prices are likely to retrace also. Support levels could be seen as floors. And the central pivot point is the main pivot point. Therefore, in a bullish movement, pivot points below the main pivot becomes support levels, while pivots points above the main pivot become the resistance levels and vice visa will be the case when it is a bearish movement.

HOW TO CALCULATE PIVOT POINTS

Before calculating pivot points, you will first find your high, low and close for the particular currency pair you intend to analyze. If you are a day trader, you high, close and low should be the previous day’s data while a weekly trader will use that of the previous week. To do this, simply open and login into your Meta trader platform, go to tools, click on history center, click on forex, click on the currency pair you intend to find, click on daily, click on import and ‘ok’ it. Or simply press ‘F2’ on your computer keyboard when your Meta trader platform is on.

Pivot points could be calculated using the following formulas:

Resistance3=High+2*(Pivot-Low)
Resistance2=Pivot+(R1-S1)
Resistance1=2*Pivot-Low
PivotPoint=(High+Close+Low)/3
Support1=2*Pivot-High
Support2=Pivot-(R1-S1)
Support 3 = Low - 2*(High - Pivot)


Also, pivot points calculators could be found online. To search for them, simply enter “forex pivot
Point calculator” into your google search bar, when the results appear, click on any of it. Enter your high, close and low data. Click ‘calculate’ and your pivot points will be automatically calculated.

I will end this article here and continue from here in the next edition. In the next edition, we will be looking at the pivot point trading strategy; when to enter a trade, how to place take profit and stop loss orders, etc. please, do not miss the next edition because this is just a tip of the iceberg when it comes to pivot point trading strategy. For your information, pivot points analysis is one of the most popular and best forex trading strategy. If you trade forex and don’t know how to use this strategy, you are still gambling. Goodbye and see you in the next edition.