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Applying Pivot Points to the FX Market Generally speaking, the pivot point is seen as the primary support or resistance level. What we also see when trading pivots in the FX market is that the trading range for the session usually occurs between the pivot point and the first support and resistance levels because a multitude of traders play this range.
Figure 2 - This chart shows an example of the strength of the support and resistance calculated using the pivot calculations. The Significance of Market Opens One of the key points to understand when trading pivot points in the FX market is that breaks tend to occur around one of the market opens. Two Strategies Using Pivot Points Many strategies can be developed using the pivot level as a base, but the accuracy of using pivot lines increases when Japanese candlestick formations can also be identified.
Figure 3 - This chart shows a pivot point being used in cooperation with a candlestick pattern to predict a trend reversal. Another strategy traders can use is to look for prices to obey the pivot level, therefore validating the level as a solid support or resistance zone. There are many different forex strategies based on pivot points but not many of them are profitable in the end.
Pivots are also very popular in the forex market and can be an extremely useful tool for range-bound traders to identify points of entry and for trend traders and breakout traders to spot the key levels that need to be broken for a move to qualify as a breakout.

The prices used to calculate the pivot point are the previous period's high, low and closing prices for a security.
The reason for this is the immediate influx of traders entering the market at the same time.
For example, if prices traded below the central pivot (P) for most of the session and then made a foray above the pivot while simultaneously creating a reversal formation (such as a shooting star, doji or hanging man), you could sell short in anticipation of the price resuming trading back below the pivot point. In this type of strategy, you're looking to see the price break the pivot level, reverse and then trend back towards the pivot level.
You could easily draw a falling trend line and wait for the price to close above the trend line, thus creating a bullish bias. In this article, we'll explain how pivot points are calculated, how they can be applied to the FX market, and how they can be combined with other indicators to develop other trading strategies.
These prices are usually taken from a stock's daily charts, but the pivot point can also be calculated using information from hourly charts. As you can see in the areas circled, prices initially stayed within the pivot point and the first resistance level with the pivot acting as support. If the price proceeds to drive through the pivot point, this is an indication that the pivot level is not very strong and is therefore less useful as a trading signal.

Most traders prefer to take the pivots, as well as the support and resistance levels, off of the daily charts and then apply those to the intraday charts (for example, hourly, every 30 minutes or every 15 minutes).
Once the pivot was broken, prices moved lower and stayed predominately within the pivot and the first support zone. However, if prices hesitate around that level or "validate" it, then the pivot level is much more significant and suggests that the move lower is an actual break, which indicates that there may be a continuation move.
If a pivot point is calculated using price information from a shorter time frame, this tends to reduce its accuracy and significance. Prices then began to reverse back below the central pivot to spend the next six hours between the central pivot and the first support zone.

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18.06.2014 | Author: admin

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