Pivot points trading

Pivot points are yet another means to identify key support and resistance levels in forex trading. If you don't like working with Fibonacci in trending markets, this is your tool. It is a good short term trading tool that can be used in trading ranges or break-outs. They are leading indicators. Most of the other indicators that you will use in technical analysis are lagging.

There 5 main Pivot Points and look like as shown below on the chart.



These pivot points are calculated as shown below;

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

First resistance (R1) = (2 x PP) - Low
First support (S1) = (2 x PP) - High

Second resistance (R2) = PP + (High - Low)
Second support (S2) = PP - (High - Low)

Third resistance (R3) = High + 2(PP - Low)
Third support (S3) = Low - 2(High - PP)

You choose any market, consider its closing time as the close of market and take the high and low during that time period for the calculation. Also note that some charting software includes intermediate support and resistance line in between the main points. In our discussion we will focus only on the main ones.

Interpreting and Using Pivot Points

Pivot points can be used;
1. To enter and exit markets
2. To determine the overall trend that the market is likely to follow

Among all different levels, the Pivot Point is the primary support and resistance. Hence the big movements are likely to occur around this area. Below you can see a simple example of pivot points can be used to sell and buy a the right point in time to make some quick pips.

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