Calculation of Pivot Point

There are many ways to calculate pivot point. The most accurate way that found is calculated by taking the average of the high, low and close of a previous period (or session).

Pivot point (PP) = (High + Low + Close) / 3

Below will be the example:

Open: 1.2386
High: 1.2474
Low: 1.2376
Close: 1.2458

The PP would be,
PP = (1.2474 + 1.2376 + 1.2458) / 3 = 1.2439

What is the message behind the number? It tells us about the market that trade above 1.2439, it is bull market. And if the market is trading below this 1.2439, it is likely to be a bear market. This kind of condition will continue until the beginning of next session.

Since Forex is a 24 hours market, we can take the open, close, high and low from each session at anytime. But the more accurate predictions is calculating at 00:00 GMT until the close at 23:59 GMT. There are also have support and resistance levels in this market.

There is other calculation of the PP as below:

Support 1 (S1) = (PP * 2) – H
Resistance 1 (R1) = (PP * 2) - L
Support 2 (S2) = PP – (R1 – S1)
Resistance 2 (R2) = PP + (R1 – S1)

H =High of the previous period

L =low of the previous period

Let’s say, PP = 1.2439

S1 = (1.2439 * 2) - 1.2474 = 1.2404
R1 = (1.2439 * 2) – 1.2376 = 1.2502
R2 = 1.2439 + (1.2636 – 1.2537) = 1.2537
S2 = 1.2439 – (1.2636 – 1.2537) = 1.2537

These levels are used to mark down the levels of support and resistance for the present session.

By using the same example above, the PP was calculated by using the information of the earlier session (the day before). From that, we can see clearly about the resistance and support levels. However, we also can use the previous weekly or monthly information in order to calculate the support and resistance levels. By doing so, we are able to notice the market flowing over a longer term. In addition, we are able to see the possible levels that the support and resistance levels might have achieved throughout the week or month. Most of the long term dealers calculated the pivot point by using the weekly or monthly data, and sometimes it also used by short term dealers in order to get a good idea about the longer term trend of the current market.

Pivot to Map Time Frame

A use of map is that you can see how the market goes relative to the earlier market movements. We can see the responses from traders and investors at anytime and get a general idea of where the market is heading to. It helps you to trade wisely.

Pivot point in Forex market is a turning point or condition. It is the market level changes from “bull” to “bear” or vice versa. It is a bull market if the market continues to go up level and if the market is expected continue goes down level, then it is a bear market. There are also have some support or resistance levels in the market. A possible bounce is considered reasonable if price can’t break the pivot point.

Pivot points function well in liquid markets as well as in other markets.

How does pivot point work? It simply works out with traders and investors use and trust, as well as bank and other traders’ companies. All the traders should know that pivot point is an important measurement for the strength and weakness of any market.

As already stated, the pivot point zone is a familiar technique as it works simply because of the use and trust from many traders and investors. But what about the other support and resistance zones (S1, S2, R1 and R2)? To predict something likely to happen for the support or resistance level with some mathematical formula in some way is quite subjective. We can not rely on that formula blindly merely because of the formula suddenly popped out on the level. For this reason, we have found another simpler alternative way to map our time frame, and somehow it is more objective and effective.

What we should know is that support and resistance levels are not merely a level resulting from the mathematical formula but they are measured objectively. These levels which have upturned there before have a higher probability of being more effective.

Mapping method works on trending and on sideways market conditions. In a trending market, it helps us determine the strength of the trend and trade off important levels. On sideways markets, it tells us about the possible turning levels.

How does our mapping method function?
Mapping method can function in three different ways such as

(i) As a trend identification (measure of the strength of the trend)

(ii) A trading system using important levels with price behavior as a trading signal

(iii) To set the risk reward ratio (RR) of any given trade based on where is the market relative to the previous session.

Pivot Forex

The Pivot techniques work well in markets with a wide daily trading range, such as the Forex. Pivot lines steers traders away from “no man’s land” and identifies “high activity” areas in which the equity has a high probability of reversal. These areas are important trading zone watched daily by floor traders and computer trading systems.

The levels for the trading ranges and pivots are the support and resistance levels of the market in the next time interval. It is important to note that the predicted levels only give the range in the next time interval.

They do not indicate when the levels will be reached by the currency price action. The pivot is a level at which the underlying asset can be expected to change direction and/or move rapidly away from.


DAILY PIVOT DATA

My pivots program provides not only Pivot, R1, R2, S1, and S2, but also the M1, M2, M3, and M4 points as well. It is common to find many traders calculating only the Pivot, R1, R2, S1, and S2 levels.

In the Forex market, however, you will find my additional points of support and resistance to be very significant indeed. These pivot data points are published daily and is available for access to you once you start the course. The Forexmentor video course also shows you how to calculate the Pivot points using our proprietary Pivot Calculator.

After you have calculated the pivot numbers for the day, place horizontal lines on your 15 minute and 1 hour charts at the pivot numbers for the day, or at least as many lines as your chart has room for. These pivot points will guide your trading throughout the day.

Learn Pivot Points

My trading system is based on pivots. Pivot points are targets, or mile markers, used for assessing price movement and determining direction. If you’re unfamiliar with pivot points and how I use them, below is an overview

Pivot points are rarely understood and even rarely used by the Forex trader. However, they are gaining in popularity, once traders realize there is nowhere else to turn.

Used by professional floor traders, pivot trading is one of the oldest and most valuable technical trading methods available. Professional traders calculate pivot points in preparation for each trading sessions. The pivot lines system is an indispensable guide for making profitable decisions. For an active trader, the pivots can mean the difference between winning and losing.


WHY PIVOT POINTS WORK

Pivot points are 'super-sized' resistance and support levels. They are more important than normal resistance and support levels because they're objective, and it’s not easy to ‘read back into the data’ what a trader may be subconsciously looking for. Many indicators and pattern recognition systems used in technical analysis are subjective and prone to human error.

For example, two traders drawing Fibonacci lines might take entirely opposite trades because a Fibonacci line does not inherently contain rules for objectivity. The same goes for Elliot Waves (very prone to ‘oh that was the 2nd wave!’) and other common systems. Common technical analysis indicators like Parabolic SAR, EMA and others generate so many false signals it again becomes difficult to be objective in choosing combinations of indicators and knowing when to execute. This is why objectivity is the pivot points system’s greatest strength, as it takes the analysis out of the trader’s hands, and puts it in the capable, mathematical hands of the computer. Why are pivot points so good at forecasting short-term price levels? Pivot points are reflective of both short-term volatility and trader psychology.

10 Things You Should Beware

* Watch out of those who guarantee large profits.
* Stay away from those who promise no financial free
* Beware of those everything sounds very easy.
* Don’t trade on Margin unless you have been trained
* Please take cautious to online/phony transferring cash in online trading
* Make sure its really interbank market
* Job offer as Account Executive might lead you to use your money for currency trading
* Need to ensure the company background
* Avoid those company who won’t let you know their background
* Don’t fully trust any agency or broker, put some effort to understand currency trading by yourself.


Risks Accessment Consideration

Trading currency exchange will carry certain level of risk which may not be fitting all investors' appetite. Prior to trading, investor should take consideration of their experience level, monetary objectives, financial management plan and risk-bearing.



Credit risk
Due to intended or unintended action by counter party, an outstanding currency position may not be paid off as agreed due to voluntary or involuntary action by counter party.

Replacement risk
When you cannot get refund from the counter party and induce your account deranges, instantly clear off your books to hold the currency price rate.

Settlement risk
Due to different prices at different time zones between you and your counter party, transaction payment might possible to be declared not enough money before payment is executed.

Exchange rate risk
Variation of currency rate is due to the worldwide market supply and demand. Price changes may bring to loss from profitable position.

Interest rate risk
Because of variation of currency rate, in forward spread , there might be some maturity gaps and transaction mismatch.

Dictatorship risk.
Dictatorship (sovereign) risk refers to the government's interference in the Forex activity. Ttraders have to realize that kind of the risk and be in state to account possible administrative restrictions.