A:

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.

RELATED FAQS
  1. What are the differences between a Pivot and a Pivot Point?

    Understand the basics of pivot trading and the key difference between the calculation of the pivot and the pivot points derived ... Read Answer >>
  2. Why are forex Pivot Points important for traders and analysts?

    See why pivot point analysis is particularly applicable to the forex market and what traders consider when they use pivot ... Read Answer >>
  3. What is the difference between forex Pivot Points and forex Levels of Support & resistance?

    Understand the differences between pivot points and levels of support/resistance in an asset's price movements, both in and ... Read Answer >>
  4. How are Pivots interpreted by analysts and traders?

    Find out why traders and analysts use pivots in their analysis of price movements and why pivots can be used to create trading ... Read Answer >>
  5. How do I build a profitable trading strategy when using Pivots?

    Understand the basics of pivot trading and how to use pivot points effectively to establish profitable trade strategy by ... Read Answer >>
  6. What are the best ways to identify Retracements on a stock?

    Read about three of the most common methods for identifying retracement levels on a stock's price chart, including the controversial ... Read Answer >>
Related Articles
  1. Trading

    Pivot Strategies: A Handy Tool For Forex Traders

    Make more educated trading decisions by identifying major turning points.
  2. Trading

    Price Pivots Circle Big Profits

    Reading pivots will help you spot trends and use them to your advantage.
  3. Trading

    Using Pivot Points In Forex Trading

    Learn to combine this powerful tool with traditional technical tools for greater returns.
  4. Trading

    Gauging The Strength Of A Market Move

    Learn how to apply the ACD technique to a longer time horizon.
  5. Trading

    Using Pivot Points For Predictions

    Learn one of the most common methods of finding support and resistance levels.
  6. Trading

    Stocks at Make or Break Points on the Chart

    These stocks are at points where short-term momentum could reverse the trend; bulls and bears should be watching these closely.
  7. Trading

    Make Money With The Fibonacci ABC Pattern

    We break down this indicator into simple, easy-to-understand pieces so you can profit.
  8. Trading

    U.S. Indexes Lose Ground as Economy Rebounds

    A weekly technical summary of the major U.S. indexes.
  9. Trading

    Major U.S. Indexes Hit Milestone Not Seen Since 1999 (SPY, DIA)

    A weekly technical summary of the major U.S. indexes.
  10. Trading

    ChartAdvisor for February 5, 2016

    Weekly technical summary of the major U.S. indexes.
RELATED TERMS
  1. Forex Pivot Points

    A set of indicators developed by floor traders in the commodities ...
  2. Pivot Point

    A technical analysis indicator used to determine the overall ...
  3. Pivot

    A price level established as being significant either because ...
  4. Broadening Formation

    A pattern that occurs during high volatility, when a security ...
  5. Ascending Channel

    An ascending channel is the price action contained between upward ...
  6. Horizontal Channel

    Using trendlines to connect variable pivot highs and lows shows ...
Hot Definitions
  1. Benchmark

    A standard against which the performance of a security, mutual fund or investment manager can be measured.
  2. Mobile Wallet

    Mobile wallet is a virtual wallet that stores payment card information on a mobile device.
  3. Leverage

    1. The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment. ...
  4. Trumponomics

    Trumponomics is a term for the economic policies of President Donald Trump.
  5. Universal Health Care Coverage

    An organized healthcare system that provides healthcare benefits to all persons in a specified region. Many countries, such ...
  6. Davos World Economic Forum

    The annual meeting of the World Economic Forum hosted at Davos—a small ski town in Switzerland—in January each year is among ...
Trading Center