Forex Trading Terminology: Pivot Points
If you started to learn software for Forex trading
, most likely you met such tool as pivot points calculator. In different trading systems pivot points are very important market triggers. That is why it will be useful for you to get acquainted with what they mean and how they influence on the Forex market.The method of pivot point trading came to the Forex from the stock market. It was widely used for forecasting the market situation, as it implied short calculations and was not so difficult as fundamental or technical market analysis. Generally this method implies the ability to calculate the point of market change, relying on high, low, opening and closing points of the market from the day before. It is a way of predicting of the situation on the Forex that helps traders to make reasonable investments.
Currently traders and researchers use a few approaches to calculating the day"s pivot points. The easiest one and the most widely used is averaging of the high, opening and closing points of the previous trading day. These indicators also give ability to calculate other pivot points. Generally pivot point is the point on the chart where the market changes a current trend to the opposite one. We will need two more terms for the further explanations "" resistance and support. Resistance is a high point on the chart where the Forex rates for specific currency begin to downturn. Support is the opposite, low point where the currency rates start climbing up.
Usually support and resistance points are the extremes of the chart, and most likely currency rate will not go out of the interval between these two values. When the rate reaches extreme, post probably there will be slight turn back.
Pivot points calculation has a clear mathematic algorithm that can be found an any of numerous Forex manuals and online articles. They help to define the interval in which a currency pair rate will change during a day. Pivot point is somewhere in the middle between resistance and support points. If the market opens with a rate higher pivot point value, it is a good sign for starting long traders, as the market trend is up. If the market opens with the rate lower than pivot point value, the conditions are more advantageous to short trades and fast sales.
Using pivot points is reasonable strategy for plan your daily trading. There is specialized Forex software for making all required calculations.
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