Pivot Points are one of the most widely used tools in Forex trading, but have you ever wondered why traders rely on them so much? 

Let’s say you know the levels where price movements might stop, reverse, or break through, wouldn’t that give you an edge in the market? 

Whether you’re a beginner or an experienced trader, understanding Pivot Points can change the way you analyze price action. 

But what exactly makes them so powerful, and how can they help you make better trading decisions?

Let’s look into it and know the secrets behind pivot points.

What are pivot points in forex?

Pivot points are special price levels that help traders predict where the market is likely to move next. 

They are used to find support and resistance levels, which are areas where price movement may slow down, reverse, or continue strongly.

Think of pivot points like road signs on a highway. When driving, you use road signs to know where to stop, where to slow down, and where to speed up. 

In forex, pivot points act like those signs, guiding traders on where the price might bounce back or breakthrough.

Why are pivot points important in forex trading?

Pivot points are popular among traders because:

• They help identify key price levels for making better trading decisions.

• They work in all market conditions, whether the market is trending or moving sideways.

• They are calculated automatically using a simple formula (we will explain it later).

• Many traders use them, making them even more reliable because they influence market behavior.
  

How Are Pivot Points Calculated?

The calculation of pivot points is based on three key prices from the previous trading day:

• High: The highest price of the previous trading day.

• Low: The lowest price of the previous trading day.

• Close: The closing price of the previous trading day.
  

The main pivot point (PP) is calculated using this simple formula:

PP= (High+Low+Close) / 3

Once the main pivot point is found, traders calculate additional support and resistance levels:

• First Resistance (R1) = (2 × PP) – Low

• First Support (S1) = (2 × PP) – High

• Second Resistance (R2) = PP + (High – Low)

• Second Support (S2) = PP – (High – Low)
  

These levels help traders decide where the price is likely to stop or continue moving.

How Do Traders Use Pivot Points?

Traders use pivot points in different ways, but the most common methods include:

1. Finding Support and Resistance

If the price is above the pivot point, traders believe the market is bullish (going up), and they look for buying opportunities.

If the price is below the pivot point, traders believe the market is bearish (going down), and they look for selling opportunities.

2. Breakout Trading

When the price breaks above resistance, it might mean the market is ready to move higher. Traders buy when the price moves past resistance levels.

When the price falls below support, it might mean the market is weak and will drop further. Traders sell when the price moves below support levels.

3. Reversal Trading

Some traders use pivot points to find areas where the price might reverse direction. If the price reaches a support level and starts bouncing back up, traders look to buy. If the price reaches a resistance level and starts falling, traders look to sell.

Why do pivot points work?

Pivot points work well because they are used by many traders, from beginners to professionals. Since a large number of traders watch these levels, the market often reacts at those points, creating price movements that traders can take advantage of.

Should You Use Pivot Points?

Yes. If you’re serious about forex trading, pivot points can be a valuable tool to help you understand price movements better. However, they should be used together with other indicators like trend lines, moving averages, and candlestick patterns for more accurate trading decisions.

Conclusion

Pivot points are an easy-to-use and powerful tool in forex trading. They help traders identify important price levels, make better trading decisions, and increase their chances of success. 

Whether you’re a beginner or an experienced trader, learning how to use pivot points can give you an edge in the forex market.

Now that you understand what pivot points are and how they work, are you ready to try them in your trading?