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:

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

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 are the most common market indicators forex traders follow?

    Learn the most common technical indicators that forex traders and currency market analysts utilize to predict likely market ... Read Answer >>
  4. 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 >>
  5. What is a common strategy traders implement when using the Dynamic Momentum Index?

    Learn how to implement a common trading strategy using the dynamic momentum index that traders utilize when price is near ... Read Answer >>
  6. How should a risk-averse investor build a retirement portfolio?

    Learn about a strategy to take advantage of a higher high failure on a chart, as well as the basics of trend trading and ... 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. Financial Advisor

    Pivot Points

    Learn more about this technical indicator and how you can use it as a predictive tool.
  5. Investing

    The Psychology Of Support And Resistance Zones

    Emotion drives the market more than you might realize. Find out how psychology affects support and resistance zones.
  6. Trading

    Stocks Rise on Crude Recovery and Yellen Testimony

    Weekly technical summary of the major U.S. indexes.
  7. Trading

    Stocks Begin the Year on a High Note

    Positive payroll data pushed stocks up for the week but the Dow finished just shy of the 20,000 mark.
  8. Trading

    Make Money With The Fibonacci ABC Pattern

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

    Stocks Gain Ground in Volatile Week

    The major U.S. indexes ended in positive territory after a volatile week of trading (SPY).
RELATED TERMS
  1. Pivot

    A price level established as being significant either because ...
  2. Structural Pivot

    A price-bar formation that gives real-time price signals of support ...
  3. Broadening Formation

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

    An ascending channel is the price action contained between upward ...
  5. Liquidation Level

    In forex trading, the specific value of a trader's account below ...
  6. Price Channel

    The price action contained between two parallel lines in a trend. ...
Hot Definitions
  1. Promissory Note

    A financial instrument that contains a written promise by one party to pay another party a definite sum of money either on ...
  2. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
  3. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  4. Absolute Advantage

    The ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost ...
  5. Nonce

    Nonce is a number added to a hashed block, that, when rehashed, meets the difficulty level restrictions.
  6. Coupon

    The annual interest rate paid on a bond, expressed as a percentage of the face value. It is also referred to as the "coupon ...
Trading Center