Pivot points: what are they?

It happens every single time (unfortunately). We start reading about Forex stuff and we come across some new terms which we instantly forget about when charts go crazy. It is a common scenario for most of us, but it is not a good one.

Incorporating new terms and concepts to your Forex mental encyclopedia sets you up for success. It does not guarantee it, but it gets you closer to it. And that is 100% proven.

So, let’s begin with a term that most of us have heard in the past but not many took the time to learn about it consciously of its positive effects in day-to-day trading.

Definition: “A pivot point is a technical analysis indicator used to determine the overall trend of the market over different time frames.”

Again, we are talking about trend. Therefore, trading above the pivot point is seen as supportive for a bullish move, while trading below the pivot point could be interpreted a dovish signal.

Have you seen a similar table in the past?

S3 S2 S1 PP R R2 R3
1.2234 1.2240 1.2243 1.2249 1.2252 1.2258 1.2261

In case you are not following...

  • S1 / S2 / S3: First, second and third level support.
  • R1 / R2 / R3: First, second and third level resistance.
  • PP: Pivot Point

Behind-the-scenes calculations:

  • PP = (High + Low + Close) / 3
  • R1 = (2 x PP) – Low
  • S1 = (2 x PP) – High
  • R2 = PP + (High – Low)
  • S2 = PP – (High – Low)
  • R3 = High + 2(PP – Low)
  • S3 = Low – 2(High – PP)

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