HOW DO PIVOT POINTS WORK?
HOW DO PIVOT POINTS WORK?
How do Pivot Points Work? The pivot points are one of the most common indicators used by traders in the currency markets. This is especially true if the operator is an intraday intraday operator, but loses a bit of importance for the long-term operator. The main reason why they are so popular is because they are a quick way to find out the possible support and resistance in a market.
Potential areas are loosely based on the idea of expected volatility in a pair, and gain their first advantage in futures pits as a quick way to look for trading opportunities during a trading session. There are people who will decipher the pivot points in a longer time frame, but they will always meet with them; It is almost always on a short-term chart. In fact, there are short-term Forex traders who use nothing more than pivot points.
Some platforms support pivot points, but if you use a platform that does not support them, it is easy to calculate and graph them. For those of you with MetaTrader 4, there are a lot of indicators available for download in forums around the Internet that will calculate them automatically, and some brokers will also offer tools that will do it for you.
The pivot levels are calculated using three types of information from the previous day:
HIGH PRICE
LOW PRICE
CLOSING PRICE
Obviously, to find the maximum, minimum and closing price of the previous day, you just have to check the candlestick of the previous session. Many operators plot pivot points in graphics with shorter time intervals such as the one-hour and 15-minute versions. Pivot levels can tell you when the market is going to reverse and change its direction as other short-term traders follow it as well. Obviously, these are not 100% predictive, but they can give you a good idea as to when day traders may be looking to invest in the market for the immediate future.
Calculate the pivot points with the following formula:
- Pivot point = (yesterday’s high + yesterday’s close + yesterday’s low) / 3
- Resistance1 = (pivot point x 2) – low yesterday
- Support1 = (pivot point x 2) – high yesterday
- Resistance2 = Pivot point + (high yesterday – low yesterday)
- Support2 = Pivot point – (high yesterday – low yesterday)
These are the possible areas of support and resistance in short-term markets that can be a guide for the day. Often, merchants will also use something like a candlestick in order to confirm the reactions that might be occurring in these areas.
A graph that shows the daily turning points in a 15 minute chart is attached.
Observe how the price has reacted to these levels as operators enter and exit the market:
As you can see, these are good “guides” on how markets can move and react. However, it is suggested that pivot points simply be part of your system, not the entire system
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