There is one more pivot point that is to measure the level of Forex market sentiment in addition to other functions that we have learned (to determine trading range and as a breakout strategy indicator).
What is meant by the level of market sentiment here is that you can find out whether a trader is in a condition to buy or sell to a currency pair. What we need to do is look at the price position against the Pivot Point (PP) level.
If the price breaks the pivot point and continues above this level, it indicates that the currency pair is in bullish condition and we open BUY position. The following is an example of how prices are able to penetrate the Pivot Point (PP) level and stay above it.
In the chart of price movements of the EUR / USD currency pair we know that the price is opened above the pivot point level. Then continue to move up to penetrate Resistance R3.
Then if the price breaks or breaks the Pivot Point level towards the bottom it indicates that the seller is in a sell position and the EUR / USD price is bearish (bearish) and this is the right time for you to open a SELL position.
For more details, let’s look at the following GBP / USD price movements.
In the chart of price movements above we see that the price is trying to test the Pivot Point (PP) level which acts as resistance. The price is able to penetrate a little level but then reverses until it penetrates the S2. If you at that time know the keyword that the price is below the PP level and it’s time to do a SELL position then you will get a profit of around 300 PIPS! what do you do? yummy right!
But again we must remember that all this does not have to go according to our theory. There are times when you see prices break the PP level and then move opposite (reversal), but in reality moving in the opposite direction again penetrates the PP level and continues to move upward to continue the journey as shown in the following picture.
If you make a decision to do a SELL position when the price breaks the PP level down then you will get a loss because it turns out that after the price is able to break the S1 the price moves in opposite directions until it penetrates PP to R1.
What we need to learn from this event is that there are no indicators that can stand alone to be able to provide a great opportunity for the estimation of price movements and what must be done is to combine them with other methods or indicators to get a strong confirmation of SELL or BUY.