Traders and market makers have used 澳洲幸运5官方开奖结果体彩网:pivot points to determine critical support and/or resistance levels for many years. Pivots are also very popular in the 澳洲幸运5官方开奖结果体彩网:forex market and they can be an extremely useful tool for range-bound traders to identify points of entry. They can also help trend traders and 澳洲幸运5官方开奖结果体彩网:breakout traders spot the key levels that must be broken for a move to qualify as a breakou🍬t.

It's key to understand how pivot points are calculated, how they can be applied to the FX market, and how they can be combined with other indicators to develop other 澳洲幸运5官方开奖结果体彩网:trading strategies.

Calculating Pivot Points

A pivot point is a point of rotation. The prices used to calculate the pivot point are the previous period's high, low, and 澳洲幸运5官方开奖结果体彩网:closing prices for a security.

These prices are usually taken from a stock's 澳洲幸运5官方开奖结果体彩网:daily charts but the pivot point can also be calculated using information from hourly charts. Most traders prefer to take the pivots as well as the 澳洲幸运5官方开奖结果体彩网:support and resistance levels off of the daily charts and then apply those to the intraday charts such as hourly, every 30 minutes, or every 15 minutes. It tends to reduce its accuracy and significance if a pivot point is calculated usingꦅ price information from a shorter timeframe.

The textbook calculation for a pivot 🌠point works like this:

Central Pivot Point (P) = (High + Low + Close) / 3

Support and resistance levels are then calculated off of this pivot point. They're outlined in these formulas:

• First level support and resistance:

First Resistance (R1) = (2*P) - Low

First Support (S1) = (2*P) - High

• The second level of support and resistance:

Second Resistance (R2) = P + (R1-S1)

Second Support (S2) = P - (R1- S1)

Calculating two support and resistance levels is common practice but it's not unusual to derive a third support and resistance level as well. Third-level support and resistances are a bit too esoteric to be useful for trading strategies, however. 

Applying Pivot Points to the FX Market

The pivot point is generally seen as the primary support or resistance level. This is a 30-minute chart of the currency pair GBP/USD with pivot levels calculated using the daily high, low, and close prices.

Significance of FX Market Opens in Pivot Points

There are three market opens in the FX market: the U.S. open which occurs at approximately 8:00 am EST or the European open which occurs at 3:00 am EST, and the Asian open which occurs at 7:00 pm EST.

The 澳洲幸运5官方开奖结果体彩网:trading range for the session usually occurs between the pivot point and the first support and resistance levels because a multitude of traders play this range. You can see in the areas circled in this chart of the currency pair USD/JPY that prices initi𒅌ally stayed within the pivot point and the first resistance level with the pivot acting as support. Prices moved lower and stayed predominantly within the pivot and the first support zone when the pivot🧔 was broken.

One of the key points to understand when you're trading pivot points in the FX market is that breaks tend to occur around one of the market openings due to the immediate influx of traders entering the market at the same time. These traders go into the office, take a look at how prices traded overnight and what data was released, and then adjust their portfolios accordingly.

Prices🉐 may remain confined for hours between the pivot level and either the support or resistance level during the quieter periods. These typically occur between the U.S. close at 4:00 p🅠m EDT and the Asian open at 7:00 pm EDT and sometimes even throughout the Asian session which is the quietest. This provides the perfect environment for range-bound traders.

Two Strategies Using Pivot Points

Many strategies can be developed using the pivot level as a base but the accuracy of using pivot lines increases when Japanese 澳洲幸运5官方开奖结果体彩网:candlestick formations can also be identified. You could 澳洲幸运5官方开奖结果体彩网:sell short in anticipation of the price going back to trading back below the pivot point if prices traded below the central pivot (P) for most of the session and then rose above the pivot. This would simultaneously create a reversal formation such as a 澳洲幸运5官方开奖结果体彩网:shooting star, Doji, or 澳洲幸运5官方开奖结果体彩网:hanging man.

An example is shown in this 30-minute USD/CHF chart. USD/CHF had remained range-bound between the first support zone and the pivot level for most of the Asian 澳洲幸运5官方开奖结果体彩网:trading session. Traders began taking USD/CHF higher to break above the central pivot when bulls lost control as the second candle became a Doji formation and Europe joined 🌠the market.

Prices then began to reverse back below the central pivot to spend the next six hours between the central pivot and the first support zone. Traders watching for this formation could have sold USD/CHF in the candle right after the doji formation to take advantage of at least 80 pips of profit betwe💙en t🐟he pivot point and the first level of support.

Another strategy employed by traders is to look for prices to obey the pivot level, therefore validating the level as a solid support or resistance zone. You're looking for the price to break the pivot level, reverse, and then trend back toward the pivot level in this type of strategy.

It's an indication that the pivot level isn't very strong if the price proceeds to drive through the pivot point. It's therefore less useful as a trading signal. The pivot level is more significant and suggests that the move lower is an actual break, however, if prices hesitate around that level or "validate" it. It indicates that there may be a continuation move.

This 15-minute GBP/CHF chart is an example of prices "obeying" the pivot line. Prices were first confined within the mid-point and pivot level for the most part. GBP/CHF rallied and broke above the pivot level at the European open at 2:00 am EDT. Prices then retraced back to the pivot level, held it, and proceeded to rally once again.

The level was tested once again right before the U.S. market opened at 7:00 am EDT. Traders should have placed a buy order ꧙for GBP/CHF at this point because the pivot level had already proved to be a significant support level. GBP/CHF bounced off the level and rallied once again for traders who employed that strategy.

The Bottom Line

Traders and market makers have been using pivot points for years to determine critical sup✨port and/or resistance levels. Pivots can be especially popular in 💎the FX market because many currency pairs tend to fluctuate between these levels. Range-bound traders will enter a buy order near identified levels of support and a sell order when the asset nears the upper resistance.

Pivot points also enable trend and breakout traders to spot key levels that have to be broken for🎐 a move to qualify as a breakout. These technical indicators can be very useful when the market opens.

An excellent way for individual investors to become more attuned to market movements and make more educated transaction decisions comes from having an awareness of where these potential turning points are located. Pivot points can also be incorporated 🅰into many trading stra🥂tegies given their ease of calculation. The flexibility and relative simplicity of pivot points make them a useful addition to your trading toolbox.

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