Using Pivot Points in Forex Trading Whichever trading strategy a trader applies, he should always take into account horizontal zones where the price can get support or meet resistance. It is important to understand that all market participants pay attention to these levels, and because of the psychological factor, they become even stronger.
As the price approaches the resistance area, the longists will want to cover the positions, and the shorts will try to enter, which will lead to an increase in bearish pressure and at least will not allow taking a significant level from the first attempt.
However, it is difficult to independently mark out levels, because this process is very subjective.
Here comes to the rescue knowledge of the pivot points the same levels of support and resistance, which are calculated by an exact mathematical algorithm.
The importance of the Pivot points, which are called Pivot Points in English, has already been appreciated by a huge army of traders, so anyone who seriously uses technical analysis on Forex and other financial markets necessarily focuses on them in their trading.
When predicting price movement, traders apply different approaches. Someone is guided by fundamental statistics, someone likes to listen to their intuition, but the most rational group of speculators is looking for in the run of quotes mathematical patterns that have the property of repeating.
It is to the latter group that we can include the mathematician Henry Chase. Who at the dawn of the origin of technical analysis in the early 20th century defined the points of the Pivot, calculated each time with three main parameters of the price behavior for the last trading day.
Having determined where the market is most likely to move, you need to pay attention to R1, R2, R3, and also to S1, S2, S3.
So, the trader has points Pivot, how to work with them? Yes, very simple, as well as with the usual levels of resistance/support.
In the example considered, one can see that the market opened above the center line, so it is worth waiting for the development of the uptrend.
Therefore, the trader waits and sees that the price has approached the R1 level. There can be both a breakdown and a reversal. That is, you have to wait patiently.