The Effect Of Pivot Point in Forex Trading

The Effect Of Pivot Point in Forex Trading

You want to buy a shirt, that you want to wear at both formal and informal events, but at the same time, you have a limited budget. So, if you can really buy a shirt inside your budget and your purpose is fulfilled then you are in a win-win situation. You have pulled out the best outcome of the shirt right?

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Wondering how this is related to foreign exchange trading or Foreign exchange market? Well, it is indeed very much related. Because almost every trader wants to get the best outcome from the forex market. And the Pivot Point Forex Trading Strategy is exactly that sort of Strategy!

So I bet, you want to get the best outcome from the forex market. And, the pivot point trading strategy is the ultimate choice of thousands of traders.
 

Many intraday and short-term traders use pivot points as a type of support and resistance level. Besides trading with pivot points, the same rules are applied to other types of support and resistance trading techniques.

During this Russia Ukraine war situation, fx trading is more volatile than before. The forex market is unstable in this situation. But with a pivot point strategy, you can ensure reliable trading.

As considered to be the key factor of intraday trading, most traders follow pivot points as their primary choice. Let's know a brief about pivot point basics and after that, we will try to bring the strategies and other key factors in front of you.

Content Overview

  • What Actually Are Forex Pivot Points?

  • Pivot Point Forex Trading Strategy

  • How To Measure Pivot Points

  • Pivot Resistance and Support Calculation

  • Pivot Points on The Chart

  • Pivot Points Calculator

  • What is a Pivot Point indicator?

  • How To Set Up Pivot Points

  • How RSI Divergence React At Pivot Resistance/Support

  • Pivot Trading Strategy

  • MACD in Pivot Point Strategy

  • The Good And The Bad

  • Lesson Learned

  • Frequently Asked Questions

 

 

What Actually Are Forex Pivot Points?

Forex pivot points are calculated as to the result of the price levels on the chart. These signs show very important decisions where the price can be reversed, especially when it's the first touch of the level.

Most traders make their trading decision based on the pivot points strategy that works and intraday traders are also giving attention to it.
 

History of pivot points

Pivotes were used by floor traders in the stock markets. In this calculation, the market analyses the highest and lowest price from the previous day and the close price for the day.

It helped them identify key levels on trading days. Pivots have predictive capabilities that make them a key indicator of trade. It's pivot points has the highest value of the day. In essence they represent a balance of bullish and bearish forces.

If prices rise above this pivot points, stock markets will be bullish. During peaks below pivots prices can be regarded negatively.
 

What is a Pivot Point Forex Trading Strategy?

Pivot point Forex trading strategy is utilized to mirror an adjustment of market emotion and to decide in general trends across a period span like they were pivots from which trading swings are either high or low.

Initially utilized by floor brokers on equity and futures trades, they currently are most generally utilized related to support and resistance levels to validate trends and reduce potential losses.
 

Like different types of trend line analysis, pivot points center around the significant connections between high, low, and shutting costs between trading days.

Though it can be used with other trading instruments. But pivot points are really useful when traders use them to trade currency pairs in the foreign exchange market. Whatever, in my opinion fibonacci pivot points are the focus point for this strategy.
 

The foreign exchange market is very volatile and the liquidity is very high. That's why it reduces the impact of market manipulation when trading with high-volume instruments. It might catch support and resistance thoughts created by pivot points. Also maintaining support and resistance levels are also difficult.
 

How To Measure Pivot Points

Standard pivot point calculation requires three numbers and figures: close, high, and low.

So, at first, we will start with the daily pivot points. The formula is:
 

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

As the forex market opens 24/5, it is really confusing when the daily market opens and closes. Many traders abide by a certain time around 11:59 PM GMT for foreign exchange market opening time and 12:00 AM GMT for the closing time. By completing this procedure, you can separate daily trading sessions from each other.
 

When you finally get PP, now you can start the upper and lower pivot points forex trade strategy. These are called first, second, and third pivot resistance levels and first, second, and third pivot support levels.
 

Pivot Resistance and Support Calculation

As we have spoken before that we will simultaneously break down every pivot resistance and support calculation. So, here is the first pivot resistance and support calculation:

R1 = (2 x Pivot Point) – Daily Low

S1 = (2 x Pivot Point) – Daily High
 

Now, it's time for the second pivot resistance and support calculation:

R2 = Pivot Point + (Daily High – Daily Low)

S2 = Pivot Point – (Daily High – Daily Low)
 

Finally, we are reaching the third pivot resistance and support calculation:

R3 = Daily High + 2 x (Pivot Point – Daily Low)

S3 = Daily Low – 2 x (Daily High – Pivot Point)
 

We bring down all calculations so that you can understand the pivot resistance and support levels.

The pivot resistance and support calculation can be done by other names but the process is similar.
 

Pivot Points on The Chart

When you have both the basic pivot points forex trading strategy and the support and resistance as well, there will be a total of 7 different levels. You have already seen before that it is really exhausting to calculate manually.

But there are some other ways where you can calculate pivot points without having trouble with the manual type.
 

Pivot Points Calculator

There are multiple online pivot point calculators available on the internet.  When you open a calculator to calculate your pivot points, you need three price action variables (the daily high, the daily low, and the close).

When you put down the three informative variable information, now just click on the 'calculate' button.

You will get pivot points. Once you complete the calculation, just write down the pivot lines on your trading chart within your trading Pivot Point platform. While calculate pivot points, you need to measure pivot point breakout strategy.
 

What is a Pivot Point indicator?

Nowadays, almost every trading software has a pivot point indicator that helps calculate levels and place them in your trading chart.

First of all, you have to check what your trading software offers. If you do not find it, then you should go for extra research.
 

If you search on the internet, you can find many pivot point indicators, which you can add to your trading chart. There are multiple free pivot point indicators available on the internet, where you can choose the best one for you.

First, you have to import the pivot point indicator, then go for export where your indicator file is located.
 

Once you complete the procedure, you directly get access to the pivot point indicator to your trading chart. Finally, you see a picture like this after you complete all procedures:
 

Pivot Point indicator

In this chart, you can show the EUR/USD of the 30-minute timeframe. If you see the horizontal lines on the chart, then you got the sign. These are the pivot points. The blue line in that chart is the central pivot point.

The R1, R2, and R3 are the main pivot points above the lines. And below the blue lines are the S1, S2, and S3. But the S2 and S3 are not visible. In this chart, we extra put three vertical lines.
 

It indicates three different trading days. If you carefully look at the pivot levels, you can see every trading day lined up separately. Because every trading day has separate daily high, low and close values.

That's why the pivot levels are different from each other. That's why the pivot lines for every trading day have a rapid switch in the level.
 

Using a Pivot Point MT4 indicator

MetaTrader 4 is a well-recognized FX trading platform based on extensibility that helps it achieve success. The MQL language provides users with the ability to quickly build new indicators or trading algorithms.

The most important indicators for identifying the level of programming available are developed by the large users. However the disadvantages are varied in quality. I'd recommend you use an instrument made up of experienced experts. Pivot point breakout trading is for them who has a vast knowledge in foreign exchange field.

The MT4 has now a limited number of indicators that are suitable for these standards. Unfortunately, there are no pivot points indicators on this tool which is standard.
 

Support and Resistance Levels

Underlying practically almost all technical analyses are fundamental concepts like support and resistance. These levels are thought of as crucial battleground in the bear / bull battle.

As markets approach, a lot of investors are expecting a rebound. Several may expect to have breakouts. Therefore these prices represent important prices for their potential for significant movements. locating these levels is incredibly important skill development. In pivot point trading, support and resistance levels are essential to generating consistent profits.

Tell me the best way of calculating these key pricing factors?
 

How To Set Up Pivot Points?

For bullish and bearish traders who always try to short or long the market has a different setting position of pivot point trade strategy. Here is a set of rules for the traders:

For Shorts

In R1, R2 or R3 must identify the bearish divergence at the pivot points.

If the price steps back below the reference point (it could be anywhere, R1, R2, or R3), approach with a short position at the recent swing high with a stop.

Place take profit order at the next level. Your first target would be R1 if you sold at R2. For this reason, the former resistance becomes support and vice versa.
 

For Longs

In S1, S2 or S3 must identify the bullish divergence at the pivot points.

If the price steps up above the reference point (it could be anywhere, S1, S2, or S3), approach with a long position at the recent swing low with a stop.

Place take profit order at the next level. Your first target would be S1 if you buy at S2. For this reason, the former support becomes resistance and vice versa.
 

How RSI Divergence React At Pivot Resistance/Support

Generally, it's a very high reward-to-risk trade. The risk is pretty much visible where we have seen the recent high or low for the buy.

RSI Divergence React

This example shows the pivot points are calculated using weekly data. Where the R1 acts as solid resistance at 1.2854(first orb) and the RSi divergence points out its upside was limited.

This means that there is a chance to go for a short break below R1 and take a stop at the recent high, where it has now a support level:

  • Sell short at 1.2853.
  • Stop at the recent high at 1.2885.
  • Limit at the pivot point at 1.2784.

This first trade netted a 69 pip profit with 32 pips of risk. The reward-to-risk ratio was 2.16.
 

Pivot Trading Strategy

As we completed the pivot point calculation part, now we are approaching some pivot point foreign exchange trading strategies:

Price Action

At first, we will cover, without any trading indicator, how you utilize pivot points as a part of the price action trading strategy. We will apply the ordinary rules to take part in the market.

Whenever we enter the market on a breakout, we will set up a stop loss under the prior pivot point. Our target will be the second pivot point level after the breakout.

Please give attention to this chart:

Price Action in Pivot trading Strategy

This is an H1 chart of EUR/USD. There are two tradable breakouts through the pivot point level.

The blue pivot line at the beginning of the chart through the first breakout line. Your stop-loss order must be put right up R1(the first pivot level on the main pivot point). But the target will be S2 (the second one must be under the main pivot point).
 

MACD

Now, in this strategy, we will bring the most popular MACD (Moving Average Convergence Divergence) indicator. This strategy's main point is marrow with a pivot point breakout.

There is an alternative to bounce it with a MACD crossover or divergence. When you got the signals by analysis of both indicators, you should enter your position in the market. Like the previous strategy we mentioned above, you have to set stop loss.
 

Mark your stop loss on a previous pivot point. You should take the position till MACD provides an opposite crossover response. This chart image will clear your vision widely:

MACD in Pivot Point Strategy

We collect this USD/CAD chart of the H1 timeframe (Date: Feb 19 - 26, 2016). This image clearly shows one long and two short possible positions. The signals that you guys are seeing are based on MACD crosses and PP breakouts.

Let's start with the first trading possibility which is definitely the short one. We found the first signal which is downward.
 

Because the MACD lines pass downward. After keeping an eye on the chart we found that the price was breaking by the main pivot point and this is the second bearish signal for now.

[Note: Must keep an eye on the pivot level.]
 

For this case, now it can be short USD/CAD based on the strategy. Like the image, put a stop loss above the R1 pivot point.

At Pivot point trading strategies, the price begins a descending behavior. If we look carefully, we will see that there is rectification in the primary pivot point (first dark bolt).
 

Then surely the price drops from the pivot point level and starts reducing. The second hesitancy in the bearish pattern prompts a bullish cross of the MACD lines and the trade needs to be shut. Definitely, traders have a chance to win 53 pips from this strategy.
 

How to Trade with Pivot Points the right way?

You have to understand how to trade pivot points. Using pivot points, you can leverage your advantage.

Traders using pivotpoints are ultimate support and resistance strategies for a trader to gain. There was a lack of subjectivity in the use of manual data to plot resistance levels. This page will explain why pivots are important in trading strategies!
 

Pivot Points were calculated mostly through the floor traders who formerly traded on trade tables. The importance of knowing these facts for understanding how valuable the pivot point is for your trading. Bankers are trading differently.
 

The Good And The Bad

As we already talked a lot about pivot point calculation, pivot point trading strategies, pivot point indicator, and many more. Now, it's time to make some ultimate comparisons between the good and the bad.

The Good

  • It is proven one of the best accurate conducting indicators

  • As you have seen, the support/resistance levels are just awesome.

  • It is widely spread to the trading community.

The Bad

  • Need other indicators besides pivot points for better results.

  • There is a claim that false signals are generated during non-trading days.

  • Pivot Point fluctuates too often under a volatile market.

Lesson Learned

Before ending, here is what we learned today:

  • For intraday chart levels, pivot points strategies are totally responsible. It acts as a support and resistance field.

  • Pivot points work in a very convenient way as the calculation process is very formulated.

  • Pivot point configured where the main element is a basic pivot level which is called PP.  Where it has its support levels below according to S1, S2, and S3 and three resistance levels above (R1, R2, and R2).

  • Certain forex pairs daily high, low, and close are used to calculate pivot points.

  • Many traders place open-close orders to set daily time frames. It starts from 00:00 AM GMT to 11:50 PM GMT.

  • The Daily high, low, and close are changed according to the PP, R1, R2, R3, S1, S2, and S3 level changes.

  • You can find multiple pivot point calculators to extract your pivot data.

  • The pivot indicators are very handy to use and you can easily attach them to your platform.

  • It is always beneficial to put stop-loss when trading on pivot points. When you enter a trader, you must set stop loss at the previous pivot point.

  • Whenever you set take profit select these three ways:

  1. When the price crosses two pivot areas.

  2. When you confirm an indicator signal.

  3. When it was based on price action signals.

  • You can try two methods while trading pivot points. 1. Trading with price action. 2. Trading with MACD
     

Wrapping Up Things With

Pivot point trading strategies changes the momentum of trading possibilities. There are three different positions of high, low, and close that are changed by the support and resistance levels which are affected by the pivot points.

As pivot points are widely famous, traders choose them for expert analysis. If you search on the internet, you can find many types of pivot points. They have their own diverse formula but the result is all the same.
 

Whatever this strategy provides to the traders, they have to be prepared for the upcoming hazards. Preparation is the defensive progress of trading. Remember, one thing,

"Trading is not for the dabblers, the dreamers, or the desperate. It requires, above all, one steadfast trait of dedication. So if you are going to trade, trade like you mean it" -Rod Casilli.
 

Frequently Asked Questions

Q1: Are pivot points good for trading?

Even though pivot points are predictive, traders regard them as leading indicators. The main pivot point represents a fundamental price level for the day. It principally means a balance of bullish and bearish forces.
 

Q2: What Is A Pivot Point In Trading?

A pivot point is a technical analysis indicator or calculation used to assess the total trend of a market over various time frames. The pivot point trading indicator is merely the average of the previous trading day's intraday high and low, as well as the market close.
 

Q3: What Is Fibonacci Pivot Point? 

When looking at values from a previous period, whether daily, every week, quarterly or yearly, point research findings highlight prices considered a likely turning point. Each pivot points study has its own unique characteristics for calculating these points.
 

Q4: When Can You Buy With Pivot Point?

While using the pivot point bounce strategy, it is best to buy stocks whenever there is an uptrend rebound on the upside. If the opposite occurs, there is a descending bounce and it is time to sell the stocks.
 

Q5: Which Pivot Points Are Best For Intraday?

Short time frames such as one minute, two minutes, and five minutes are ideal for pivot point indicators. Day traders will prefer pivot points as a result of this. When it comes to accuracy, pivot point indicators are among the main resources. So even though pivot points are so widely used, this is the case.
 

Q6: How Do You Use Pivot In A Sentence?

The concern at the heart of the debate is a noun. The performers changed course by pivoting on their toes. The pin serves as the pivot for the door hinge. The wide receiver shifted his weight and threw the ball to the running back.
 

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