Welcome to Lesson 10 of the Forex Indicators series. This lesson focuses on pivot points, a powerful technical indicator used to determine potential support and resistance levels in forex trading.
Pivot points are calculated using a precise formula based on the previous day’s high, low, and closing prices. Unlike Fibonacci retracements, which rely on ratios and can be subjective, pivot points provide objective levels that help traders anticipate price movements.
These levels include a central pivot point (PP), multiple resistance levels (R1, R2, R3), and support levels (S1, S2, S3). This setup makes pivot points especially useful for day traders who rely on intraday price action to make quick decisions.
How to Use Pivot Points in Your Trading
One common strategy is to enter trades in the direction of a breakout from these pivot levels. For example, if the price drops to the R1 resistance level and then breaks through it, traders can enter a buy position targeting the next resistance levels, such as R2 and R3.
Pivot points also work well with candlestick analysis. For instance, a bullish engulfing candlestick pattern forming near the S1 support level can signal a potential reversal, allowing traders to buy with targets at the central pivot point and R1.
Using a pivot points calculator can simplify the process by automatically computing these critical levels based on daily data, ensuring accuracy and speed.
Why Use Forex Pivot Points?
Forex pivot points help you quickly identify key price areas without complicated calculations. They work well with other indicators and price action signals, providing a clear framework for setting entry and exit points.
Summary
Understanding pivot points trading offers you a systematic approach to finding support and resistance in the market. By using the forex pivot points levels and combining them with candlestick patterns, you can enhance your intraday trading decisions.
Use the pivot points strategy along with other tools at PROP365 to sharpen your trading edge and improve results.
