Forex Trading with Pivot Points

Forex Currency Trading

Title: Trading Forex Online with Pivot Points

Author: Eddie Sieberhagen

Article:
Pivot Points are used by Forex Traders on a daily basis and are
calculated on the previous days move and trades are entered when
the market hits a support or resistance line of the pivot point
providing your OB/OS indicator is in agreement. All the support
and resist lines are put in place 1st thing in the morning. then
you wait for the market to hit those entry Points.

Contrary to what some might believe, Pivot Points in Forex
trading are probably the most popular method used in trading the
financial markets today. Long before the invention of computers
this was the method used by the traders in the pits to determine
hidden support and resistance levels.

The Pivot Point is still used by experienced floor traders and
technical analysts alike. The major advantage now is that we now
have computers and can calculate our points well in advance.
Many charting packages can calculate them for you automatically,
thus enhancing the use of Pivot Points.

Whilst there is a lot more to Pivot Point Trading in Forex
Trading than we will be mentioned in this article, the purpose
of this exercise is to introduce you to the concept of trading
Forex with Pivot Points.

Remember the market can only go up, down, or sideways. It is
like an elastic band that has been stretched, sooner or later it
will rebound to an equilibrium point where the market is in
balance, and then stretch the opposite way only to rebound and
reach another balance point. Then some fundamental announcement
or happening will drive the market in a new direction and so on
day after day. Pivot Points can aid us in determining how far
that elastic can stretch before it rebounds.

Whilst there are many time frames that can be used for
calculating Pivots, for the purpose of this exercise lets
concentrate on the daily time frame (i.e.: 24hr) Pivot Points
are calculated using the previous days, Open, High, Low, and
Close figures. There are many Pivot Point calculators available
on the web so you don't have to waste your time doing the
calculations manually. Also bear in mind the longer the time
frame you are using the longer you must be prepared to stay in
the market or wait for the next entry point.

Pivot points unlike many other indicators are an objective tool.
Because they are mathematically calculated, there can only be
one answer for a specific time period.

Many subjective indicators like Fibonacci retracements, (and I
am a great fib fan) Elliot waves etc. can have different people
trading in different directions at the same time due to
individual interpretation..

The PP's can help you to predict the next day's highs and lows
in advance. PP's can give you anything from 4 to 8 support and
resistance levels. However you still have to be able to identify
the trend to be a successful PP trader. Pivot Points also work
best in a trending market.

Entry and exit points Pivot Points can give you exact entry and
exit points, rather than enter markets that are in the middle of
a run, or about to turn the other way. Here is where we use
other indicators to assist on the entry or exit. If the market
stalls at a Pivot Point level, and you have an overbought or
oversold indicator that will be a good time to get in or out. Or
if a Fibonacci level coincides with a Pivot Point level it can
make a strong case to enter or exit a trade. If the market is
bullish and your favourite indicator is not near overbought,
when it hits the first resistance level then you probably have a
good case to stay in the market and make your profit target the
next Pivot Point resistance line. The breakout above the 1st
resistance level can then become your new stop or stop reverse.

Obviously the reverse is true of the support level as well. By
combining the Pivot Points with your favourite indicator you can
develop your own trading system that no one else uses.

Trading for the day will probably remain between the 1st support
(S1) and resistance (R1) levels as the floor traders make their
markets. Once one of these levels is penetrated other traders
will be attracted to the market, and should the second level be
breached, the longer term traders are attracted to the market.

Knowledge of where the floor traders are expecting support or
resistance can be a distinct advantage especially when there is
no outside influence in the market. Provided no significant
market news has occurred between yesterdays close and today's
opening, the local floor traders and market makers tend to move
the market between the Pivot Point (P) and the first support
line (S1) and resistance (R1) If one of these levels is breached
then expect the market to test the next levels (S2) and ( S3) or
(R2) and (R3)

Whilst there are many other aspects to Pivot Point trading why
not try this simple method first and see if you can develop your
own strategy by using your existing trading technique's in
conjunction with the Pivot Points.

About the author:
Self Directed Trader - Trade Forex Online.
http://www.fxhometrader.co.za http://fxhometrader.blogspot.com

Foreign Currency Trading