What is a Pivot Point?

🔁 What is a Pivot Point in Forex Trading?

A pivot point in Forex trading is a key price level used in technical analysis. Pivot points can help traders identify optimal entry and exit levels. Generally, when a currency pair trades above its pivot point, it is considered bullish, while trading below the pivot point is considered bearish.

 

Pivot points can help traders identify optimal entry and exit levels. Generally, when a currency pair trades above its pivot point, it is considered bullish, while trading below the pivot point is considered bearish...Calculating Forex Pivot Points

You can easily calculate the pivot point of a currency pair using the high, low, and closing prices over a specific time period—typically one trading day.

  1. The simplest formula is: Pivot = (High + Low + Close) / 3

  2. You can also include the opening price: Pivot = (High + Low + Close + Open) / 4

  3. Alternatively, weighted averages may be used: Pivot = {High + Low + (2 × Close) + Open} / 5

**Pivots are typically calculated using a daily chart.

 

Which Types of Traders Use Pivot Points?

Pivot points are used by traders of all styles:

  1. Trend traders use pivots to fine-tune their entry levels.

  2. Breakout traders see pivot breaks as strong indicators of potential breakouts.

  3. Range-bound traders use pivots to trade during low volatility, often between a pivot and support or resistance.

  4. Beginner traders use daily pivot points with support and resistance to simplify their trading decisions.

 

How to Trade Using Forex Pivots

When a currency approaches a pivot point early in a trading period, it may present a trading opportunity.

For example, if EUR/USD is trading at 1.2840 and drops to 1.2800—a pivot point—then shows signs of an uptrend, you may consider buying. If the pivot is tested but not broken, and volume increases, the upward reaction is considered more reliable.

 

Calculating Support & Resistance Using Pivots

Once the pivot point is established, support and resistance levels can be calculated:

First Support & Resistance

  • 1st Resistance = (2 × Pivot) – Low of the period
  • 1st Support = (2 × Pivot) – High of the period

Second Support & Resistance

  • 2nd Resistance = Pivot + (Resistance1 – Support1)
  • 2nd Support = Pivot – (Resistance1 – Support1)

Third Support & Resistance

  • Note that these levels are considered weaker than the first and second levels.
  • 3rd Resistance = Pivot + (Resistance2 – Support2)
  • 3rd Support = Pivot – (Resistance2 – Support2)

 

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◘ What is a Forex Pivot Point?

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