Forex Pivot Points
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 is the point where the market reverses. It is a turning point. If the
market is trading above Pivot Point it is considered to be a bull market (buyers are dominant), once it goes below the Pivot Point it becomes a bear market (sellers are dominant).
RESISTANCE is a high point in the market where buyers meet strong opposition of
sellers. A rising market reaching resistance has big potential of falling back down.
SUPPORT is a low point in the market where sellers meet strong opposition of buyers. A falling price reaching support has a big chance of climbing back up.
Support and resistance levels are difficult to break through, but they do fail, otherwise the price
would be all the time going in only one direction.
There is a rule that once a support or resistance level is broken it becomes the opposite force: a
broken support will become a resistance, and a broken resistance serves as a future support.
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. On the right side you can find one.
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