Your Definitive Guide to Pivot Points in Forex Trading https://www.brokerxplorer.

com/article/your-definitive-guide-to-pivot-points-in-forex-trading-2765

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Y o u r D e � n i t i v e G u i d e t o P i v o t P o i n t s i n F o r e x Tr a d i n g
HHOOM
MEE // AARRTTIICCLLEE // TTRRAADDIINNGG BBAASSIICCSS

BByy DDiivvaa NNaaddiiaa

 May 13 2022     

Pivot points could provide reliable support and resistance areas so you can look for ideal entry and exit levels. There's also a strategy
where you could combine it with a technical indicator.

Many forex traders like to use pivot points to help them determine support and resistance areas on the price chart. PPiivvoott ppooiinnttss aarree
ccrreeaatteedd bbaasseedd oonn tthhee hhiigghheesstt pprriiccee ((H
Hiigghh)),, tthhee lloow
weesstt pprriiccee ((LLoow
w)),, aanndd tthhee cclloossiinngg pprriiccee ((CClloossee)) ooff tthhee pprreevviioouuss pprriicceess to
predict the prevailing support and resistance levels.

As a trader, you might have noticed that forex trading requires some reference levels like support and resistance that could help you
decide where to enter the market and where to set your stop loss and take pro�t. If you think about it, support and resistance levels are
quite reliable to determine the amount of risk in a trade. Without a proper risk calculation, there's a high chance of running out of funds
in a short time. On the other hand, an appropriate amount of risk will give you a better opportunity to be pro�table.

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waarrdd RRaattiioo iiff YYoouu''rree aa D
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One of the tools that you can use to determine potential support and resistance areas is pivot points. In this article, we're going to analyze
the accuracy of pivots and demonstrate how to combine pivot points with other technical indicators in forex trading to make
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analysis.

CCoonntteennttss

• Pivot Points for Beginners

• The Best Time to Calculate Pivot Points
• Pivot Points Accuracy as Support and Resistance Levels
• Setting Stop Loss and Take Pro�t with Pivot Points
• Combining Pivot Points with Oscillators

Pivot Points for Beginners

Pivot points were originally used by stock and futures traders, but now it's also applicable to forex trading, particularly for short-term
traders. Forex traders typically use daily pivot points, which are calculated based on the closing prices of the previous day. More
speci�cally, they use the closing prices of the New York market time (4:00 pm EST).

Here is an example of daily pivot points along with the support and resistance levels of GBP/USD on a 1-hour chart:

You can calculate pivot point by using the following formula:

Pivot Point = High + Low + Close / 3

You can then draw the accompanying support and resistance levels with the formula below:

• Resistance 1 (R1) = (2 x Pivot Point) - Low

• Support 1 (S1) = (2 x Pivot Point) - High
• Resistance 2 (R2) = Pivot Point + (High - Low)

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• Support 2 (S2) = Pivot Point - (High - Low)

• Resistance 3 (R3) = High + 2 x (Pivot Point - Low)
• Support 3 (S3) = Low - 2 x (High - Pivot Point)

In reality, you won't need to manually calculate all the levels above. You can simply use custom indicators that could automatically display
the pivot points on trading platforms like MetaTrader. If you don't want to use any indicator from a third party, you can use tthhee ppiivvoott

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ppooiinntt ccaallccuullaattoorr.
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Th e Best Time to Calculate Pivot Points

PPiivvoott ppooiinnttss ccaann bbee ccaallccuullaatteedd ddaaiillyy bbaasseedd oonn tthhee H
Hiigghh aanndd LLoow
w ooff tthhee pprreevviioouuss ddaayy. You can also count it weekly based on the
High and Low of the previous week. In some cases, pivot points can even be calculated monthly. Day traders typically use daily pivot
points, whereas swing traders typically make use of daily and weekly pivot points.

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Beesstt ffoorr SSw
wiinngg TTrraaddiinngg??

P i v o t P o i n t s A c c u ra c y a s S u p p o r t a n d R e s i s t a n c e L e v e l s
In order to measure the accuracy of pivot points in the span of x number of days, here's what we can do:

• Subtract the actual Low on that day with the support level based on pivot points. You'll get these formulas: Low – S1, Low – S2, and
Low – S3.
• Subtract the actual High on that day with the resistance level based on the pivot points. You'll get these formulas: High – R1, High –
R2, and High – R3.
• Find the average value of each result.

If we apply those formulas to the EUR/USD pair from January 1999 to early 2010, then we'll get:

• The average value of the actual Low is 1 pip below Support 1.

• The average value of the actual High is 1 pip below Resistance 1.
• The average value of the actual Low is 53 pips below Support 2.
• The average value of the actual High is 53 pips below Resistance 2.
• The average value of the actual Low is 158 pips below Support 3.
• The average value of the actual High is 159 pips below Resistance 3.

Based on the statistics above, we can conclude that S1 and R1 levels are fairly accurate to measure the actual Low and High. You will be
able to �gure out the best possible price movements after doing a series of research to determine the accuracy of pivot points on your
favorite currency pair.

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w ttoo TTrraaddee VVoollaattiillee CCuurrrreennccyy PPaaiirrss

S e t t i n g S t o p L o s s a n d Ta k e P r o � t w i t h P i v o t P o i n t s
In this part, we're going to see the number of trading days when the Low is lower than S1, S2, and S3, as well as the number of trading
days when the High is higher than the R1, R2, and R3. The following calculation used the data from the day EUR/USD �rst traded to the
12th of October in 2006 2026 trading days in total):

• The actual Low has been lower than S1 892 times or equal to 44% of the time.
• The actual High has been higher than Resistance 1 583 times or equal to 42% of the time.
• The actual Low has been lower than S2 342 times or equal to 17% of the time.
• The actual High has been higher than R2 354 times or equal to 17% of the time.
• The actual Low has been lower than S3 63 times or equal to 3% of the time.
• The actual High has been higher than R3 52 times or equal to 3% of the time.

Such information is certainly helpful to help you determine your potential stop loss and take pro�t levels. O Onnccee yyoouu ��gguurree oouutt tthhaatt tthhee
LLoow
w ooff tthhee ccuurrrreennccyy ppaaiirr ffaallllss bbeelloow
w SS11 ffoorr aabboouutt 4444%
% ooff tthhee ttiim
mee,, iitt sshhoouulldd bbee eennoouugghh ffoorr yyoouu ttoo ppllaaccee aa ssttoopp lloossss bbeelloow
w SS11.
The same concept can be used to determine your take pro�t order. You would want to place your take pro�t just below R1 because
historically, the High exceeds R1 only 42% of the time.

Even if it feels like the odd is on your side and you are con�dent with the result, please remember that all of these are only probabilities
that are based on past prices. There is no guarantee that such scenarios are de�nitely going to happen in the future.

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Co mb i ning P ivot Poin t s w it h O scil lator s

As mentioned, you can combine pivot points with other technical indicators like oscillators, for instance. One of the most popular options
is the Relative Strength Index (RSI). Here's an example of hhoow
w ttoo ccoom
mbbiinnee RRSSII ddiivveerrggeennccee w
wiitthh ssuuppppoorrtt aanndd rreessiissttaannccee lleevveellss.

From the chart above, we can see that there was a bearish divergence on the RSI. This suggests that the price might move down from
there. You can open a short position after the price breaks through R1 (which was still a support level at the time). Place a stop loss on the
previous High and take pro�t based on the pivot point. In addition, you can apply the same rules for the following day because the RSI
divergence was still ongoing.

Did you know? Weekly measurement is considered ideal for a long-term strategy in forex trading. If you're more suitable in using weekly
analysis, you might need to learn how to long-term trading the right way.

D
Diivvaa N
Naaddiiaa
Passionate in contemporary global �nancial issues, I'm currently active in researching topics on cryptocurrency, forex, and
trading strategies.

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Tell us what you want to �nd 

10 Comments

Carlo Maria
May 26 2022

Can I use pivot points for breakout trading?

Divany
May 27 2022

CCaarrlloo M
Maarriiaa: You de�nitely can! Just keep in mind that pivot points are not permanent, so they might not work every single
time.

Shelly
Jun 2 2022

What is the best indicator to combine with pivot points?

Divany
Jun 30 2022

SShheellllyy: When combining technical indicators, you need to make sure that their functions don't overlap. In this case, you
could try combining pivot points with Moving Averages and RSI.

Tonny
Jun 10 2022

Is pivot point suitable for long-term traders?

Divany
Jun 30 2022

TToonnnnyy: Pivot points are commonly used for intraday traders, but it can also be used in other strategies. For day trading,
daily pivots are the most popular, while for swing traders, weekly and monthly pivots are the best option.

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Marshall Reszkynsky
Jul 11 2022

What is camarilla pivot point?

Divany
Jul 22 2022

M
Maarrsshhaallll RReesszzkkyynnsskkyy: Camarilla pivot point is a re�ned form of the classic pivot point equations. The indicator is used to
calculate intraday support and resistance levels by using the previous days volatility spread.

Armadillo
Jul 13 2022

Can I use pivot points for crypto trading?

Divany
Jul 22 2022

AArrm
maaddiilllloo: Yes, pivot points are certainly applicable to crypto trading. The level can help us determine the overall market
trend of the day and signal potential price reversals or continuation.

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CCoonntteennttss

• Pivot Points for Beginners

• The Best Time to Calculate Pivot Points
• Pivot Points Accuracy as Support and Resistance Levels
• Setting Stop Loss and Take Pro�t with Pivot Points
• Combining Pivot Points with Oscillators

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