Pivot Strategy: Calculating Forex Pivot Points
Already widely known and used, traders and market makers use the pivot point to determine the support and / or resistance levels. Pivot is also very popular in the forex market and can be a very useful analytical tool for traders ranging to identify entry level and for trader trends and breakout traders to know the key level to penetrate in order to meet the criteria as a breakout strategy.
By definition, pivot points or pivot points can also be referred to as rotation points. The price used to calculate the pivot point is the price of high, low and close a pair. This price is usually taken from the daily chart, but the pivot point can also be calculated using the information from the hourly chart. Most traders prefer to use pivots, as well as support and resistance levels, from daily charts and then apply them to intraday charts (for example, timeframe 1 hour, 30 minutes or 15 minutes). If the pivot point is calculated using price information from a shorter timeframe, this tends to reduce its accuracy and significance.
The calculation of pivot points is as follows:
Pivot points are obtained from the sum of high, low and close prices and then divide by 3.
Pivot Points (PP) = (High Price + Low Price + Close Price) / 3
The support and resistance levels are then calculated from this Pivot level by using the following formula:
First Support and Resistance:
First Resistance (R1) = (2 * PP) – Low Price
First Support (S1) = (2 * PP) – Price High
Likewise, the second support and resistance levels are calculated as follows:
Second Resistance (R2) = PP + (R1-S1)
Second Support (S2) = PP – (R1 – S1)
Counting two support and resistance levels has become common practice, but it is not unusual to get a third support and resistance level as well. However, the third support and resistance level is a bit too limited in its use as a trading strategy. Traders also develop this Pivot Points strategy by finding or calculating the middle level between the support resistance levels.