Pivot points were originally developed by floor traders in the equity and commodity exchanges. They are calculated based on the high, low and closing prices of previous trading sessions, and are used by traders to predict support and resistance levels in the current or upcoming session. These support and resistance levels can be used by traders to determine entry and exit points - both for stop losses and profit taking.

Because the forex currency trading market is so large and liquid, pivot points - which thrive in this type of market - are very useful. The large size of the market, especially in liquid currency pairs such as the EUR/USD, helps prevent market manipulation that would keep the market from adhering to technical principles like support and resistance.

Pivot Point Calculator
Many free pivot point calculators are available online to help traders calculate their pivot points for the current or upcoming trading session. Pivot point calculators are a valuable tool, but also unnecessary, as the formula is actually quite simple. The pivot point for the current trading session is calculated as:

Pivot Point = (Previous High + Previous Low + Previous Close) / 3

The pivot point can then be used to determine levels of estimated support and resistance levels for the day:

Resistance Level 1 = (2 * Pivot Point) - Previous Low
Support Level 1 = (2 * Pivot Point) - Previous High

Resistance Level 2 = (Pivot Point - Support Level 1) + Resistance Level 1

Support Level 2 = Pivot Point - (Resistance Level 1 - Support Level 1)

Resistance Level 3 = (Pivot Point - Support Level 2) + Resistance Level 2

Support Level 3 = Pivot Point - (Resistance Level 2 - Support Level 2)

Forex Day Trading
Because the forex market is a 24-hour market, there is often confusion about what time of day to use when calculating the closing price of one trading session and the opening of another. The generally accepted times used when calculating pivot points is 23:59 GMT for the close of a trading session, and 00:00 GMT for the opening of the new session.

The forex day trader can use daily data to calculate pivot points and support and resistance for the upcoming trading day. Weekly, swing forex currency traders can use weekly data to calculate pivot points and support and resistance for the upcoming trading week. Longer term forex currency traders can use monthly, yearly, or even longer time frames when calculating pivot points and support and resistance levels on their charts. Calculations can be done quickly and easily on free forex pivot point calculators across the internet, or by hand using the simple equations noted above.

To learn more, read Using Pivot Points In FX.

  1. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  2. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  3. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  4. How is the value of a pip determined?

    A pip in foreign exchange trading is a measure of a price movement in a currency pair. "Pip" is an acronym for price interest ... Read Full Answer >>
  5. How are double exponential moving averages applied in technical analysis?

    Double exponential moving averages (DEMAS) are commonly used in technical analysis like any other moving average indicator ... Read Full Answer >>
  6. What are the alert zones in a Fibonacci retracement?

    The most commonly used Fibonacci retracement alert levels are at 38.2% and 61.8%. A 50% retracement level is also commonly ... Read Full Answer >>
Related Articles
  1. Forex Education

    The Most Famous Forex Traders Of All Time

    The five most famous forex traders share common virtues such as strong self-confidence.
  2. Chart Advisor

    ChartAdvisor for October 2 2015

    Weekly technical summary of the major U.S. indexes.
  3. Investing News

    6 Signs You Are Addicted To Investing

    An addiction to trading can ruin your life and relationships. Not to mention the monetary costs. There are telltale signs that you've gone too far.
  4. Chart Advisor

    Weakness In Biotech Will Likely Continue

    You can breathe easy with your biotech holdings--assuming you aren't counting on them to make you rich.
  5. Chart Advisor

    ChartAdvisor for September 25 2015

    Weekly technical summary of the major U.S. indexes.
  6. Charts & Patterns

    The 5 Most Powerful Candlestick Patterns

    Statistics show unusual accuracy for the buy and sell signals of certain candlestick patterns like abandoned baby, evening star, and three black crows.
  7. Chart Advisor

    ChartAdvisor for September 18 2015

    Weekly technical summary of the major U.S. indexes.
  8. Forex Fundamentals

    3 Reasons The Mexican Peso Is So Liquid

    Mexico's vast petroleum reserves and close proximity to the United States add considerable liquidity to the Mexican peso.
  9. Forex Strategies

    This Might Be the Best Time to Buy Colombian Pesos

    Signs are growing that energy markets are bottoming out, allowing the Colombian Peso to recover its value in a profitable trend against the U.S. Dollar.
  10. Technical Indicators

    How To Set Fibonacci Retracement Levels

    Build Fibonacci retracement and extension grids to identify hidden support and resistance levels that may come into play during the life of a position.
  1. Indicator

    Indicators are statistics used to measure current conditions ...
  2. Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis ...
  3. Forex Spread Betting

    A category of spread betting that involves taking a bet on the ...
  4. Mass Index

    A form of technical analysis that looks at the range between ...
  5. Money Flow Index - MFI

    A momentum indicator that uses a stock’s price and volume to ...
  6. On-Balance Volume (OBV)

    A momentum indicator that uses volume flow to predict changes ...

You May Also Like

Hot Definitions
  1. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  2. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  3. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  4. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  5. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  6. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!