Mastering Pivot Point Trading Strategies in Forex Market
Pivot Point Trading Strategies
Introduction
Pivot point trading strategies are commonly used by forex traders, day traders, and other market participants to determine the overall trend of the market over different time frames. The pivot point itself is simply the average of the high, low, and closing prices from the previous trading day. On the subsequent day, trading above the pivot point is thought to indicate ongoing bullish sentiment, while trading below the pivot point indicates bearish sentiment.
Understanding Pivot Points
Pivot points are technical analysis indicators that help determine potential support and resistance levels in the financial market. They are calculated using the high, low, and closing prices of the previous trading day. Pivot points can be used in conjunction with other technical analysis tools such as moving averages or trend lines to enhance trading strategies.
Calculation of Pivot Points
The pivot point (P) is calculated as follows:
P = (High + Low + Close) / 3
There are also several levels of support and resistance calculated from this pivot point. The first level of support and resistance is calculated using the pivot point and the high or low prices, respectively:
R1 = (2 x P) – Low
S1 = (2 x P) – High
The second levels of support and resistance are calculated as follows:
R2 = P + (High – Low)
S2 = P – (High – Low)
Pivot Point Trading Strategies
1. Pivot Point Bounce Strategy
The pivot point bounce strategy involves entering trades when the price bounces off a pivot point level. Traders can go long when the price bounces off a support level, or short when the price bounces off a resistance level. It’s important to use other technical indicators to confirm the trend before entering a trade.
2. Pivot Point Breakout Strategy
The pivot point breakout strategy involves entering trades when the price breaks through a pivot point level. Traders can go long when the price breaks through a resistance level, or short when the price breaks through a support level. Again, it’s important to use other technical indicators to confirm the trend.
3. Pivot Point Trend Strategy
The pivot point trend strategy involves using pivot points in conjunction with other technical analysis tools to determine the overall trend of the market. Traders can go long when the price is above the pivot point and other indicators confirm a bullish trend, or short when the price is below the pivot point and other indicators confirm a bearish trend.
Conclusion
Pivot point trading strategies can be a powerful tool for traders, providing a simple yet effective way to gauge market sentiment and identify potential areas of support and resistance. However, like all trading strategies, they are not foolproof and should be used in conjunction with other technical analysis tools and risk management techniques to increase the chances of trading success.