Understanding Pivot Points

By DailyFx | November 09, 2011 AAA

In our LIVE daily webinars, questions on the usage and calculation of Pivot Points will come up from time to time.

When using Pivot Points in trading, the most widely used Pivot is the Daily Pivot. To calculate the Daily Pivot a trader would add the high, low and the close of the prior day's candle. The total of those three would be divided by three and the result would be the pivot point for the current day.

Take a look at the CADCHF Daily chart below for an example&

Understanding_Pivot_Points_body_pivots.png, Understanding Pivot Points

The high of the previous day's candle above is .8925; the low is .8795 and the close is .8865. We add those three up and divide by three and we come up with .8861&the Daily Pivot for the current day.

That pivot level can be interpreted as support if price is trading above it or resistance is price is trading below it

Traders using pivots will also look for selling opportunities when price is trading below the pivot and buying opportunities when price is trading above it.

Using the Add Indicator feature, the Marketscope charting package allows you to place a pivot point on your chart without the calculation. With your chart open, simply right click on your chart, click Add Indicator, scroll down to Moving Averages and select Pivot Points and put in the number of periods you would like to include in the calculation.

--- Written by Richard Krivo, Trading Instructor

To contact Richard Krivo, e-mail rkrivo@fxcm.com.

Follow him on Twitter at @RKrivoFX

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