By: Charley Warady
Where a Forex trader gets into a trade and gets out of a trade depends greatly upon the Forex pivot points in the technical analysis. Standard Forex pivot points use the previous bars' highs, lows and closings to project support and resistance levels for future bars.
There are a couple ways to use even the standard pivot points. They are all legitimate and often times will give you the same points. Daily pivot points are useful for swing trading. It's not exactly long term trading, but if the Forex trader is only going to make one or two trades a day, it is these major swings that determine his entry and exit. These Forex pivot points are determined from the previous day's high, low and close.
A Forex trader may choose to use a series of 4 hour Forex pivot points. These are useful for intraday trading. So, for instance in the North American time zone Forex trading, 4 hours pivots are calculated from the previous 4 hours bar which ends at 2100, 0100, 0500, 0900, 1300, 1700
Longer term pivot points provide an idea of where key support and resistance levels should be. Forex pivot points work for a very logical reason: because everyone uses them. Once you have so many Forex traders on the same page, it only stands to reason the results are going to be the same. If you have so many traders with the same support, and the same resistance levels, then by definition they're going to hold.
There are, of course, various types of pivot point strategies. There are Fibonacci pivots; Camarilla pivots; Woodie's pivots; and DeMark's pivots, which are all a bit more technical. None of these strategies can be considered one better than the other. It all boils down to which one the Forex trader is most comfortable with and which one works best with his overall trading strategy.
They can and should be used interchangeably. All things should be taken into consideration. The main thing to be taken out of any of this is that the market works in support and resistance areas. Trading can be done during any kind of a long term trend, but the areas to always watch out for are determined by the Forex pivot points.
To trade or not to trade
Some Forex traders take note of the pivot points as times to back off from trading. They choose to trade only in the middle of a trend and once the market hits a pivot point, it's time to even up the position and wait for a new support or resistance and a new trend to begin. Many believe this is actually the safest way to trade. If you're picking a resistance point as your sell, and the market blows through it like a hot knife through butter, you can get stopped out of your trade very quickly. Again, it's what you're comfortable with. There is no right or wrong.
Forex pivot points are meant to be guidelines and markers. What you do with them is entirely up to you.
Forex Pivot Points
By: Charley Warady