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 best technical indicators to complement a forex Pivot Point strategy?

    Learn the best technical indicators used by traders and analysts to complement a forex trading strategy based on daily pivot ... Read Answer >>
  2. 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 >>
  3. How do I use the Dynamic Momentum Index for creating a forex trading strategy?

    Create a forex trading strategy designed to take advantage of the ability of the dynamic momentum index to give early signals ... Read Answer >>
  4. In the forex market, how is the closing price of a currency pair determined?

    The foreign exchange market, or forex, is the market in which the currencies of the world are traded by governments, banks, ... 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

    Using Pivot Points In Forex Trading

    Learn to combine pivot points in forex trading with traditional technical tools for greater returns.
  3. Trading

    Using Pivot Points For Predictions

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

    Making Sense Of The Most Traded Market In The World

    Technical indicators are extremely useful for forex traders; find out how you can get started with these powerful tools.
  5. Trading

    Interest Rates Rise and Tech Underperforms This Week

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

    Stocks Rise on Crude Recovery and Yellen Testimony

    Weekly technical summary of the major U.S. indexes.
  7. 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.
  8. 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.
RELATED TERMS
  1. Forex Pivot Points

    A forex pivot point is where a trader believes that the sentiment ...
  2. Broadening Formation

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

    An ascending channel is the price action contained between upward ...
  4. Forex Trading Strategy

    A forex trading strategy is a set of analyses that a forex day ...
  5. Liquidation Level

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

    A type of recommendation to buy an asset once the price is able ...
Hot Definitions
  1. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  2. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  3. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
  4. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
  5. Monte Carlo Simulation

    Monte Carlo simulations are used to model the probability of different outcomes in a process that cannot easily be predicted ...
  6. Price Elasticity of Demand

    Price elasticity of demand is a measure of the change in the quantity demanded or purchased of a product in relation to its ...
Trading Center