For many years, traders and market makers have used pivot points to determine critical support and/or resistance levels. Pivots are also very popular in the forex market and can be an extremely useful tool for range-bound traders to identify points of entry and for trend traders and breakout traders to spot the key levels that need to be broken for a move to qualify as a breakout. In this article, we`ll explain 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 trading strategies.
The pivot points are almost the one that really works on the forex market.
All pivots is a set of custom indicators to automatically calculate and show pivot support and resistance levels for metatrader 4 platform. It calulate the next pivot levels:
1. Daily pivots. Works with timeframe up to H4.
2. Weekly pivots. Works with timeframe up to D1;
3. Monthly pivots. Works with timeframe up to W1;
4. Yearly pivots. Works with timeframe up to MN1;
Each particular indicator consist of two indicators:
1. Main, that calculate the one pivot level and main 6 support and resistance levels – P, S1, S2, S3, R1, R2, R3;
2. Middle, that claculate one pivot and secondary 6 support and resistance levels – P, S0.5, S1.5, S2.5, R0.5, R1.5, R2.5;
The pivot point is the level at which the market direction changes for the day. Using some simple arithmetic and the previous days high, low and close, a series of points are derived. These points can be critical support and resistance levels. The pivot level, support and resistance levels calculated from that are collectively known as pivot levels.
The reason pivot points are so popular is that they are predictive as opposed to lagging. You use the information of the previous day to calculate potential turning points for the day you are about to trade (present day).
Because so many traders follow pivot points you will often find that the market reacts at these levels. This give you an opportunity to trade.
All pivot levels calculates by the next formulas:
Resistance 3 = High + 2*(Pivot - Low)
Resistance 2 = Pivot + (R1 - S1)
Resistance 1 = 2 * Pivot - Low
Pivot Point = ( High + Close + Low )/3
Support 1 = 2 * Pivot - High
Support 2 = Pivot - (R1 - S1)
Support 3 = Low - 2*(High - Pivot)
As you can see from the above formula, just by having the previous days high, low and close you eventually finish up with 7 points, 3 resistance levels, 3 support levels and the actual pivot point.
If the market opens above the pivot point then the bias for the day is long trades. If the market opens below the pivot point then the bias for the day is for short trades.
The three most important pivot points are R1, S1 and the actual pivot point.
The general idea behind trading pivot points are to look for a reversal or break of R1 or S1. By the time 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.
A perfect set would be for the market to open above the pivot level and then stall slightly at R1 then go on to R2. You would enter on a break of R1 with a target of R2 and if the market was really strong close half at R2 and target R3 with the remainder of your position.
See the MySuite GraphicTrader product to automate trading using this pattern.
This is one pattern in row of fundamentals patterns for Forex. Every one trader have to be known about pivots, are huge part of technical analysis.
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