What is a Pivot Point in Forex Trading?

A pivot point in Forex Trading is an important price level for those who are trading using technical analysis. Pivots are may help traders determining the optimal entry/exit levels. In general, when a Forex currency pair trades above the pivot point it is considered a bullish pair, while when a Forex currency trades below the pivot point it is considered bearish.

 

Calculating the Forex Pivot Points

You may calculate the pivot point of a currency pair easily by using the high, the low, and the closing price of this pair during a specific time period. Usually, that period is a trading day.

1) The simplest formula to calculate the pivot point is:

Pivot = (High + Low + Close) / 3

2) The pivot point may also include the opening prices of a specific period and thus be calculated by:

Pivot = (High + Low + Close + Open) / 4

3) Additionally you may add weights on each factor, for example:

Pivot = {High + Low + (2*Close) + Open} / 5

**Usually Pivots are calculated within a Daily Chart.

Read more: What is a Pivot Point?