DEFINITION of Forex Pivot Points

A forex pivot point is an indicator developed by floor traders in the commodities markets to determine potential turning points, also known as "pivots." Forex pivot points are calculated to determine levels in which the sentiment of the market could change from "bullish" to "bearish." Currency traders see pivot points as markers of support and resistance.

Day traders will use pivot points as a way to determine when market sentiment has gone from bullish to bearish or vice versa. 

BREAKING DOWN Forex Pivot Points

Because pivot points are thought to work well in very liquid markets, the spot forex market may be the perfect place to use them. Day traders use the calculated pivot points to determine levels of entry, stops and profit taking by trying to determine where the majority of other traders may be doing the same. Forex pivot point calculators are available free of charge across the internet through retail forex brokers and third-party websites.

Pivot points can be points that correspond to trend lines, Fibonacci levels, moving averages, previous highs/lows or closes and many more indicators, depending on the trader's philosophy. 

While pivot points can pertain to different levels, some are derived from basic formula using highs, lows, and previous closes using the following formula

 Forex Pivot Point = High + Low + Close  3 \begin{aligned} &\text{Forex Pivot Point} = \frac{ \text{High} + \text{Low} + \text{Close } }{ 3 } \\ \end{aligned} Forex Pivot Point=3High+Low+Close 

For more information on pivot points in trading see: Using Pivot Points In Forex Trading