Everything you need to know about…
Pivot Points are one of the most useful technical analysis features in Forex markets. What they essentially do is help traders anticipate price movements by calculating what are known as ‘Resistance’ and ‘Support’ levels. These are then interpreted by traders as visual cues of when to trade.
The general idea is that if:
1. At the start of a trading day, a price sits above a calculated Pivot Point, it will remain above it until it reaches a point where further upward movement is prevented – a Resistance Point.
2. Conversely, if a price begins below a Pivot Point, it will remain that way until the downward movement is stopped – a Support Point. This is known as Trading Between the Lines (that is, between the resistance and support points).
In its most basic form, calculating a Pivot Point is simply a matter of inputting key data points from the previous day’s trading; the High, Low and Closing price. Following on from that, there are a series of resistance and support points, all of which can be worked out using free online calculators.
To learn more about Pivot Points and see some examples of how they work in practice, the following links provide some useful basic information.
If you enjoyed this piece and are looking for more educational resources, please see other articles in our ‘Everything you need to know about…’ series.
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