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Apr 3
2.3 Pivot Point In Forex

 

In forex trading when we have a map on our time frame it helps us to see how the sentiments of traders and investors at a specified moment in time, it also indicates where the market is heading during the day time.
Having a map is helpful because we can compare with the previous market action. That is how we know the sentiments of traders and investors in this way we can better monitor the sentiments of traders and investors at any particular instant, we are better equipped with the idea of market that it is heading during the day forex.
trading. It also helps us to find the right direction in trade.
Pivot points is a method developed by floor traders, it help us to compare the price of the previous market action.
A pivot point is a turning point or state. It is similar to Forex market, the pivot point is a level in which the market sentiments fluctuates from “bull” to “bear” or the other way around. The sentiment is a bull market if the market breaks this level up, on the other hand the sentiment is bear when the market breaks the level down. In either case it is likely that they continue their trends. It is also expected at this level that market to have some kind of support/resistance, if the price cannot break the pivot point, then there is a possibility to bounce.
Pivot points perform optimum level in liquid markets, such as spot currency market, but also useful in other markets.
Pivot Points:
Pivot point is a level in which the sentiments of market fluctuates from bull to bear or the other way around.
Why PP Work?
Pivot point work very well because it enjoy traders and investors trust also bank and institutional traders. It is well known in the market that the pivot point is a valuable tool to measure strength and weakness of any market.
Calculating pivot points:
There are many methods to understand the Pivot point. The most effective way we found has the most precise results is by taking the average of the high, low and close of former period.
Pivot point (PP) = (High + Low + Close) / 3:
Take for instance the following EUR/USD information from the previous session:
Open: 1.2386
High: 1.2474
Low: 1.2376
Close: 1.2458
The PP would be,
PP = (1.2474 + 1.2376 + 1.2458) / 3 = 1.2439
Pivot point (PP) = (High + Low + close) / 3
Open: 1, 2386
High: 1.2474
Low: 1.2376
Close: 1.2458
What does this number explain?
It explains that if the market is trading higher than 1,2439, it shows that bulls are winning the battle by pushing the prices further high. If the market is trading below 1,2439 the bears are winning the battle by pulling the prices further low. In either case it is likely that this situation will sustain till the next session.
Forex market is a round the clock market and as it never sleeps, therefore, there is no close or open from day to day. There is a confusion in deciding the time that we should take the open, close , high , and low from each period. The most suitable time from our point of view is the time that produce more accurate estimate is taken as the open at 00:00 GMT and the close at 23:59 GMT.
In addition to the calculations of the PP, there are more support and resistance levels that are calculated by considering PP as a reference.
Support 1 (S1) = (PP * 2) - H
Resistance 1 (R1) = (PP * 2) - L
Support 2 (S2) = PP - (R1 - S1)
Resistance 2 (R2) = PP + (R1 - S1)
In a situation in which H is the High of the former period and L is the Low of the former period.
By remaining with the same illustration as above, PP = 1.2439
S1 = (1.2439 * 2) - 1.2474 = 1.2404
R1 = (1.2439 * 2) - 1.2376 = 1.2502
R2 = 1.2439 + (1.2636 - 1.2537) = 1.2537
S2 = 1.2439 - (1.2636 - 1.2537) = 1.2537
These levels have to mark support and resistance levels for the on going session.
On the above illustration, the PP was calculated by using data of the former session. That is how we see possible in the day resistance and support level . We can also calculate the former weekly or monthly data to finalize such levels. We can see the sentiments over long phase of time. We have also seen support and resistance levels during the course of week or month. Pivot point calculation is mostly weekly or monthly basis and is done by long term traders, but it also has short term traders utility. Short time traders gives us a data that can be beneficial for longer term trend.
S1, S2, R1 AND R2...? An Objective Alternative
As previously stated that pivot point zone is a proven technique used by many traders and investors. On the other hand we have support and resistance zones (S1, S2, R1 and R2) to predict a support and resistance level by using mathematical formula is somehow skewed. It is not easy to rely on them without giving much attention. To better understand we have established another way to map our time frame, its easy and more objective and effective.
. As we now know how to calculate the pivot point. But we have a different way to draw a support and resistance levels. We take a former high and low phase, and today?s chart is drawn from those levels. We will do the same as we do before with the former phase. Therefore, we have our PP drawn in our chart showing four significant levels.
LOPS1, low of the former phase.
HOPS1, high of the former phase
LOPS2, low of the phase before the former phase.
HOPS2, high of the phase before the former phase.
PP, pivot point.
These levels will inform us about the force of the market at any given instant. If the market is trading more than the PP, such market is measured as upward trend. If the market is trading more than HOPSI or HOPS2, such market is in upward trend, and at that moment we will take long positions. If the market is trading less than the PP then such market is said to be in a downward trend. If the market is trading less than LOPS! Or LOPS2, at that moment the market is in a downward trend, then only short trades should be considered.
The psychology behind this approach is not so difficult to apprehend. We are well aware of the fact that market stooped there from going higher/lower during former phase, or at the earlier phase. We are not aware of the cause, we don?t want to know it. But we know the fact that market overturned at that level. We are also aware of the fact that traders and investors have memories, they understand that the price stopped there previously, and the chances are that the marked over turned again, in any case they do find some support or resistance of these levels.
What is significant about this approach is that support and resistance levels are precise and accurate, they are not just level arise from a mathematical formula, the price overturned there previously, as a result these levels have a higher chances of success.
Our mapping technique functions on both market settings, drifting and on sideward situations. In a drifting market, it aid us to find out the force behind the drift and trade off significant levels. On sideward market it displays probable reversal levels.
How we use our mapping method?
We practice the mapping techniques in three distinct ways, as a trend recognition (assess the power of the trend) a trading system using significant levels with price actions as a trading indicator and to set the risk reward ratio (RR) of any given trade based on where the market is comparative to the former phase.

In forex trading when we have a map on our time frame it helps us to see how the sentiments of traders and investors at a specified moment in time, it also indicates where the market is heading during the day time.

Having a map is helpful because we can compare with the previous market action. That is how we know the sentiments of traders and investors in this way we can better monitor the sentiments of traders and investors at any particular instant, we are better equipped with the idea of market that it is heading during the day forex. It also helps us to find the right direction in trade.

Pivot points is a method developed by floor traders, it help us to compare the price of the previous market action.

A pivot point is a turning point or state. It is similar to Forex market, the pivot point is a level in which the market sentiments fluctuates from “bull” to “bear” or the other way around. The sentiment is a bull market if the market breaks this level up, on the other hand the sentiment is bear when the market breaks the level down. In either case it is likely that they continue their trends. It is also expected at this level that market to have some kind of support/resistance, if the price cannot break the pivot point, then there is a possibility to bounce.

Pivot points perform optimum level in liquid markets, such as spot currency market, but also useful in other markets.

 

Pivot Points:

Pivot point is a level in which the sentiments of market fluctuates from bull to bear or the other way around.

 

Why PP Work?

Pivot point work very well because it enjoy traders and investors trust also bank and institutional traders. It is well known in the market that the pivot point is a valuable tool to measure strength and weakness of any market.

 

Calculating pivot points:

There are many methods to understand the Pivot point. The most effective way we found has the most precise results is by taking the average of the high, low and close of former period.

Pivot point (PP) = (High + Low + Close) / 3:

Take for instance the following EUR/USD information from the previous session:

 

Open: 1.2386

High: 1.2474

Low: 1.2376

Close: 1.2458

The PP would be,

PP = (1.2474 + 1.2376 + 1.2458) / 3 = 1.2439

Pivot point (PP) = (High + Low + close) / 3

Open: 1, 2386

High: 1.2474

Low: 1.2376

Close: 1.2458

 

What does this number explain?

It explains that if the market is trading higher than 1,2439, it shows that bulls are winning the battle by pushing the prices further high. If the market is trading below 1,2439 the bears are winning the battle by pulling the prices further low. In either case it is likely that this situation will sustain till the next session.

Forex market is a round the clock market and as it never sleeps, therefore, there is no close or open from day to day. There is a confusion in deciding the time that we should take the open, close , high , and low from each period. The most suitable time from our point of view is the time that produce more accurate estimate is taken as the open at 00:00 GMT and the close at 23:59 GMT.

In addition to the calculations of the PP, there are more support and resistance levels that are calculated by considering PP as a reference.

 

Support 1 (S1) = (PP * 2) - H

Resistance 1 (R1) = (PP * 2) - L

Support 2 (S2) = PP - (R1 - S1)

Resistance 2 (R2) = PP + (R1 - S1)

In a situation in which H is the High of the former period and L is the Low of the former period.

By remaining with the same illustration as above, PP = 1.2439

 

S1 = (1.2439 * 2) - 1.2474 = 1.2404

R1 = (1.2439 * 2) - 1.2376 = 1.2502

R2 = 1.2439 + (1.2636 - 1.2537) = 1.2537

S2 = 1.2439 - (1.2636 - 1.2537) = 1.2537

 

These levels have to mark support and resistance levels for the on going session.

On the above illustration, the PP was calculated by using data of the former session. That is how we see possible in the day resistance and support level . We can also calculate the former weekly or monthly data to finalize such levels. We can see the sentiments over long phase of time. We have also seen support and resistance levels during the course of week or month. Pivot point calculation is mostly weekly or monthly basis and is done by long term traders, but it also has short term traders utility. Short time traders gives us a data that can be beneficial for longer term trend.

S1, S2, R1 AND R2...? An Objective Alternative

As previously stated that pivot point zone is a proven technique used by many traders and investors. On the other hand we have support and resistance zones (S1, S2, R1 and R2) to predict a support and resistance level by using mathematical formula is somehow skewed. It is not easy to rely on them without giving much attention. To better understand we have established another way to map our time frame, its easy and more objective and effective.

As we now know how to calculate the pivot point. But we have a different way to draw a support and resistance levels. We take a former high and low phase, and today?s chart is drawn from those levels. We will do the same as we do before with the former phase. Therefore, we have our PP drawn in our chart showing four significant levels.

 

LOPS1, low of the former phase.

HOPS1, high of the former phase

LOPS2, low of the phase before the former phase.

HOPS2, high of the phase before the former phase.

PP, pivot point.

 

These levels will inform us about the force of the market at any given instant. If the market is trading more than the PP, such market is measured as upward trend. If the market is trading more than HOPSI or HOPS2, such market is in upward trend, and at that moment we will take long positions. If the market is trading less than the PP then such market is said to be in a downward trend. If the market is trading less than LOPS! Or LOPS2, at that moment the market is in a downward trend, then only short trades should be considered.

The psychology behind this approach is not so difficult to apprehend. We are well aware of the fact that market stooped there from going higher/lower during former phase, or at the earlier phase. We are not aware of the cause, we don?t want to know it. But we know the fact that market overturned at that level. We are also aware of the fact that traders and investors have memories, they understand that the price stopped there previously, and the chances are that the marked over turned again, in any case they do find some support or resistance of these levels.

What is significant about this approach is that support and resistance levels are precise and accurate, they are not just level arise from a mathematical formula, the price overturned there previously, as a result these levels have a higher chances of success.

Our mapping technique functions on both market settings, drifting and on sideward situations. In a drifting market, it aid us to find out the force behind the drift and trade off significant levels. On sideward market it displays probable reversal levels.

 

How we use our mapping method?

We practice the mapping techniques in three distinct ways, as a trend recognition (assess the power of the trend) a trading system using significant levels with price actions as a trading indicator and to set the risk reward ratio (RR) of any given trade based on where the market is comparative to the former phase.

 


Technical Analysis

 

2.1 How To Read Forex Charts

2.2 Forex Trading System

2.3 Pivot Point In Forex

2.4 Perfect Forex Trading System

2.5 Ten Laws Of Technical Trading

2.6 Using Technical Indicators To Identify Trends

2.7 Trends And Corrections

2.8 Open Price And The ATR

2.9 Focus On Higher Grounds

2.10 Indication Of Trend Change In Forex

 


Forex Education

 

The Basics of Currency Forex Trading

Technical Analysis

Technical Indicators

Fundamental Analysis

Intraday Trading

Emotional & Behavioral Part

Risk & Money Management

Trading Guide