Forex Pivot Points are commonly used as support and resistance points. Price action usually “bounces” at these points. Pivots can be worked on any time frame, but mostly commonly hourly, daily, weekly and monthly pivots are used.
To work out a pivot point you use this simple formula
Previous candles high + low + close / 3
For example if we wanted the daily pivot point of EUR/USD on the 23rd of September. We would look at the candle on the 22nd September.
If the values for the 22nd September were:
high: 1.40
low: 1.39
close: 1.3933
It would be worked out this like this:
1.40+1.39+1.3933=4.1833
then the 4.1833 divided by 3 equals 1.3944. So 1.3344 would be the pivot point. There is a good chance that this area would act as support is it came into play on the 23rd September.
A Pivot Point is important to understand as they are often used in trading systems for take profit points and stoploss points.
They are not only used in forex trading, pivot points can be applied to any financial market and often provide act as support and resistance, so thorough analysis is important.
