Pivot Points
May 3rd, 2010 | 
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The technical indicator known as Pivot Points are becoming increasingly popular. The usefulness of a technical indicator is always questionable. But what is certain is that the pivot points are a very important concept and should be part of the arsenal of every player in the forex market.
One of the reasons why the pivot points are widely used for its sheer simplicity. Many indicators like the Parabolic SAR as well as the exponential moving average, require a certain level of mathematical skills to calculate. Many operators are not willing to use indicators that have only a partial view and deeper understanding is possible only when calculating the same.
The formula for calculating pivot points is very simple:
Pivot Point = (H + L + C) / 3
Where H (high) is increasing, L (low) and C is low (close) close the previous day. That is, the key point is the “average” of the three prices.
The choice of point C is a bit ‘arbitrary, because the forex market operates 24 hours a day. Generally, C is taken at foreclosure in New York, at 4:00 pm EST.
To form a basis for a strategy, the pivot point “P” is used along with other points or levels, point / level of resistance and points / level of support. The calculation of the points of support and resistance is also simple.
R1 = (P x 2) – L
S1 = (P x 2) – H
R2 = P + (R1 – S1)
S2 = P – (R1 – S1)
Of course, the method used to select the price support and resistance levels is important, and although there is usually a consensus, the prices vary from one operator to another. Some strategies select the pivot point itself as levels of support or resistance, depending on the direction of recent price movement. Others choose the closing price the previous day.
If the price moves above the pivot point, which tends to rise, the market has a bullish trend and vice versa. In the first case, the pivot point would be a level of resistance, since resistance to move prices above that level, and in the second case would be a support level.
Besides being useful groped for an assessment of trends, pivot points can be used as points of entry and exit. An investor could, for example, make an order to buy a pair of currency if the price penetrates the resistance level.
Similarly, a well integrated strategy in advance of when the decision to liquidate a position. Pivot Points can be used to help select a price to limit the loss (stop loss) if the price falls below the support level.
No single indicator can be used with confidence as the only factor in a good strategy for transactions. However, the key points have proven their effectiveness as part of a holistic approach that integrates the use of other indicators such as MACD (Convergence / divergence Sox Moving Averages).
Due to the large volume of transactions, currency prices are not affected by the action of any operator, as in the case of shares. This causes the pivot points are more useful in forex currency transactions in the sale of shares. If, however, note that it can influence results in an increase in interest rates the central bank, major political events and other key factors.
Many analysts conclude the pivot points to get to his position pursuant to two trends.
If the price of a poor day begins above the pivot point, prices will tend to remain above that level until the first resistance level. Remember, the “principle” is the somewhat arbitrary level with respect to time in forex transactions. On the other hand, if the price begins below the pivot will tend to remain below that level until the level of support.
Furthermore, known as “sale between the lines (between the lines of trading) is a popular method. Traders expect the turnaround in the level of resistance, and then sell. Similarly, you can initiate a purchase order when prices rise after a rebound on the level of support. If the market is trading near R2 or S2, price trend back towards the pivot point.
Naturally, this method like any other, must be viewed with skepticism. The support and resistance levels are penetrated all the time – and this is what makes it exciting to participate in forex trading. So the question arises, what makes these numbers are specific support and resistance levels?
And to what extent these levels affect purchasing decisions is a contentious issue. However, it is indisputable that they exist and exert influence.
It ‘s always hard to judge if the price move is a temporary correction or the beginning of a new trend. And the trend, once clearly established, there is often too late to have an order and make a profit. And as with any method of trading currencies, there is nothing that can replace the experience of witnessing the formation of an independent and solid wisdom.
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