Pivot Point Trading

Learn forex Nitty Gritty. Discover a revolutionary new forex robot. The power of pivot points is based on the fact that they work in all markets that have established ranges. Pivot points are leading indicators unlike most of the other indicators that are lagging.

Pivot points tell you about the future price action. They are calculated based on a simple mathematical formula that determines the next time period’s range based on the previous time period’s data. It includes the low, the high and the closing price for that trading session.

If you don’t know what is a range, then a range is the high and low of a given time period. Markets are just people buying and selling. The high represent the buyer’s exuberant bullishness. The low represents the seller’s pessimistic bearishness for that particular trading session.

A pivot point is that special line in sand where most traders turn from being bearish to bullish and vice versa. These points are used in the forex markets to tell if the sentiment has shifted from being positive or long to negative or short. If the price is trading above the point, you should go long. And if the price is trading below the pivot point, you should go short.

Now let’s calculate the pivot point for one trading session. Pivot= (Low+High+Close)/3. You can use a 4 hr chart to calculate the pivot point for the next session. Just plug in the values of low, high and close for the 4 hour session to calculate the next pivot point. Thus you can have 2 pivot points for each 8 hour session and 6 pivot points for the 24 hour session.

Once you have calculated the pivot point, trade long as long as the price stays above and trade short as long as the price is below the pivot point. The thinking behind the pivot points is simple but powerful. If the buyers are willing to pay more for a currency pair now than they were 4 hours ago, than at least for the time being the markets are bullish.

Pivot point works as a filter for you. You should accept only buy entry signal if the price action is above the pivot point. And you should only accept the sell signal if the price action is below the pivot point. We have used the example of 4 hour charts. You can also use daily, weekly and monthly charts to calculate pivot points for those sessions.

Pivot point will help you determine the entry and exit for each position. They can also be used in conjunction with other technical methods. Pivot point analysis is a robust, time tested and a reliable market analysis tool.

Many novice traders ignore learning them considering them complicated. It’s a myth. Learn how to use pivot points to determine the market sentiments in any timeframe. But always keep in mind; pivot point analysis is only a guide. These numbers are not the Holy Grail. These numbers can help you filter out excess information and avoid analysis paralysis from information overload.

Discover the best way to manage your money! Visit this blog and find a lot of useful info about forex managed accounts!