Trade Forex: What are pivot points?
Trade Forex: What are pivot points?
Pivot points
We can define a pivot point in easy words like that it is a scientific indicator which is used for the calculation of the numerical average of a stock's low, high and the closing prices. The prices which are referred for calculating the pivot point are the previous period's high, low and closing prices for a security. The using of pivot points as a trading strategy has been there for quite some time and was initially used by the floor traders. That was a very nice strategy adopted for floor traders to have some idea of where the market was going during the whole day with very little simple calculations.
With the using of some simple calculations and statistics of the previous days high, low and close, a series of points are derived out on which the analysis is carried out. These points are known as the critical support and resistance levels. The pivot level and the support and resistance levels which are calculated from the earlier data are jointly known as pivot levels.
For each and every single day whichever market you follow, it has an open, high, low and a close for the entire course of the day. The information which is gathered for this contains all the necessary data you need to use pivot points. The reason behind the pivot points getting so popular is that they can be predictive and analytical when compared to the lagging. You can use the information of the previous day for the calculation of the possible deciding points for the present day you are about to trade.
With so many traders following pivot points and using it as a base for the trading you will find out that the market responds at these levels which gives you an opportunity to trade.
When you take a closer look at the above said formula you will come to know that just by keeping the records for the previous days high, low and close you ultimately end up with 7 points, 3 support levels, 3 resistance levels and the actual pivot point. If the market opens up above the pivot point then the trend for the day is for the longer trades and if the market opens below the pivot point then the trend for the day is for shorter trades.
The three most vital pivot points are the first resistance R1, first support S1 and the actual pivot point. The common idea which is behind trading pivot points is to search for a turnaround or break of R1 or S1. As the day progresses and the market reaches R2, R3 or S2, S3 the market will already be overbought or oversold and these levels should be used for exits rather than entries.
The calculation for the pivot point can be explained by: - Central Pivot Point (P) = (High + Low + Close) / 3 The resistance levels and the support systems can be calculated from this pivot point using the very simple following formulas: First level support and resistance: First Resistance (R1) = (2*P) LowFirst Support (S1) = (2*P) - High Similarly, the second level of support and resistance is calculated as follows:Second Resistance (R2) = P + (R1-S1) Second Support (S2) = P - (R1- S1)The calculation of the second support and resistance levels is a very general practice being employed these days. But it's nothing sort of extraordinary to derive a third support and resistance level as well. However, the third-level support and resistances are a bit too strange to be useful for the purposes of trading strategies. It's also possible to go deeper into the pivot point analysis suppose for some traders go beyond the traditional support and resistance levels and also follow the mid-point between each of those levels.These days many traders prefer to employ this pivot method and also the resistance levels and the support systems from the daily charts then eventually apply these to the intraday charts done in hourly, thirty minutes or the fifteen minutes basis. If it is calculated by the help of the prices information from a smaller time duration then it can ultimately result in the reduction of the significance and the accuracy.But sadly life is not that simple. Sometimes we have to bear the loss too and we have to deal with each trading day in the best possible way we can..http://www.articlesbase.com/currency-trading-articles/trade-forex-what-are-pivot-points-4488041.html How to choose the best Mileage Correction online? Online Lost and Found Listings Get professional website redesign services, enhance your web visibility and boost your online presence! Top Reasons to Make a Grocery List Online The Advantages of Philippine-Based Online Shops for OFWs The Pros and the Cons of Using Online Shops Eureka 4870GZ Boss Upright Vacuum: Purchase One at Its Cheapest Online Get your custom embroidered polo shirts online Trade forex with Bollinger Bands Online Income Breakthrough Review-A Product by Gary Hicks Trade Forex with Japanese CandleSticks Buying Exquisite Bridal Sets Online Chart types - Trade forex with different charts