Beginning with the main Pivot Point that is calculated from the previous day's key price points, the resulting support and resistance are subsequently derived from the following calculations. How is the pivot levels calculated? Beginning with the main Pivot Point that is calculated from the previous day's key price points, the resulting support and resistance are subsequently derived from the following calculations:
R1 (Resistance 1) = 2PP-Yesterday's Low. R2 (Resistance 2) = PP + (R1-S1). R3 (Resistance 3) = Yesterday's High + 2(PP-Yesterday's Low).
Main Pivot Point PP = (Previous Low + Previous High + Previous Close)/3.
S3 (Support 3) = Yesterday's Low-2(Yesterday's High -PP). S2= PP- (R1-S1). S1 (Support 1) = 2PP - Yesterday's High.
After calculating these points they are plotted on the currency price chart. Trader's can calculate the current days pivot points using the above formulas based on the previous day's price data.
Breakouts or bounces may be traded with pivot points. Once these pivot levels are calculated and plotted, they are used in much the same way as Fibonacci Retracement. These pivot points are often also used as profit targets. Pivot points also indicate whether the market sentiment is bullish or bearish. Traders also use pivot points as reference levels to provide information as to whether the current price is relatively low or relatively high within its expected price range for the day.
R1, R2 and R3 similarly S1, S2 and S3 are used as references in pivot point trading. If the price is near the day's S2, for example, traders may look for long trading opportunities with the view that the price will reasonably move towards equilibrium around the main PP level.
You can also calculate the pivot levels for a week and for a month too. Instead of calculating the pivot points for the current day you can also calculate the above levels for 4 hour charts as well as 8 hour charts.
Both Fibonacci and Pivot Points are excellent technical tools that often encompass entire trading discipline in themselves. Just replace the day's highs, lows and the closing prices with the appropriate time frame highs, lows and closing prices when calculating the pivot points for the other time frames.
The pivot point can become the target low for the trading session in an extremely bullish market condition. This number represents the true value of a prior session. It is important to understand that especially in strong bull or bear market conditions, it can be used as an actual trading number in determining the high or the low of a given time period.
Traders will step in and buy the pullback until that pivot point is broken by prices trading below that level. A retracement back to the pivot will attract buyers if the market gaps higher above the pivot point in an uptrending market. The opposite is true for the pivot point will act as the target high for the session in an extremely bearish market condition.
Generally prices come back up to test the pivot point if a news-driven event causes the market to gap lower after traders take time interpreting the information and the news. Sellers will take action and start pressing the market lower again if the market fails to break that level and trade higher. Technically speaking, in a bearish market, the highs should be lower and the lows should be lower than in the preceding time frame. - 31869
R1 (Resistance 1) = 2PP-Yesterday's Low. R2 (Resistance 2) = PP + (R1-S1). R3 (Resistance 3) = Yesterday's High + 2(PP-Yesterday's Low).
Main Pivot Point PP = (Previous Low + Previous High + Previous Close)/3.
S3 (Support 3) = Yesterday's Low-2(Yesterday's High -PP). S2= PP- (R1-S1). S1 (Support 1) = 2PP - Yesterday's High.
After calculating these points they are plotted on the currency price chart. Trader's can calculate the current days pivot points using the above formulas based on the previous day's price data.
Breakouts or bounces may be traded with pivot points. Once these pivot levels are calculated and plotted, they are used in much the same way as Fibonacci Retracement. These pivot points are often also used as profit targets. Pivot points also indicate whether the market sentiment is bullish or bearish. Traders also use pivot points as reference levels to provide information as to whether the current price is relatively low or relatively high within its expected price range for the day.
R1, R2 and R3 similarly S1, S2 and S3 are used as references in pivot point trading. If the price is near the day's S2, for example, traders may look for long trading opportunities with the view that the price will reasonably move towards equilibrium around the main PP level.
You can also calculate the pivot levels for a week and for a month too. Instead of calculating the pivot points for the current day you can also calculate the above levels for 4 hour charts as well as 8 hour charts.
Both Fibonacci and Pivot Points are excellent technical tools that often encompass entire trading discipline in themselves. Just replace the day's highs, lows and the closing prices with the appropriate time frame highs, lows and closing prices when calculating the pivot points for the other time frames.
The pivot point can become the target low for the trading session in an extremely bullish market condition. This number represents the true value of a prior session. It is important to understand that especially in strong bull or bear market conditions, it can be used as an actual trading number in determining the high or the low of a given time period.
Traders will step in and buy the pullback until that pivot point is broken by prices trading below that level. A retracement back to the pivot will attract buyers if the market gaps higher above the pivot point in an uptrending market. The opposite is true for the pivot point will act as the target high for the session in an extremely bearish market condition.
Generally prices come back up to test the pivot point if a news-driven event causes the market to gap lower after traders take time interpreting the information and the news. Sellers will take action and start pressing the market lower again if the market fails to break that level and trade higher. Technically speaking, in a bearish market, the highs should be lower and the lows should be lower than in the preceding time frame. - 31869
About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. Try These Cash Printing Forex Signals From Heaven! Learn Fibonacci Retracement
