Trading Using Pivot Points
Conducting forex trading with technical analysis certainly can not be separated from identifying the support and resistance levels. There are several ways to get these levels. That is with the observation of the graph or can also use the calculation or mathematical formulation such as the use of Pivot Points. You can get these support and resistance levels by leveraging the previous high, low and close levels. See Pivot Points explanation in our previous article.
The general idea behind trading with Pivot Points is to seek reversal or break of R1 or S1 levels depending on where the price is open.
Actually the principle is only simple that if the open market (open) above the main pivot level (PP), it is considered bullish and you have to monitor the R1 level for potential buy-entry levels. Ideally, you would expect the market to pause in R1 before continuing towards R2. At R2 level this is usually when the market is overbought and may be the optimal exit level. However, if the market has enough momentum of movement, then it can penetrate R2 and move towards R3.
If open market (open) above R1maka R2 will be potential entry level and R3 will be potential exit level.
If the market opens below the main pivot level (PP), it is considered bearish and you should monitor the S1 level for a potential entry level sell. Ideally, you would expect the market to pause in S1 before continuing to S2. At S2 level this is usually when the market is oversold and maybe S2 is the optimal exit level. However, if the market has enough momentum of movement, it can penetrate S2 and move towards S3.
If the open market (opened) under S1 then S2 will be a potential entry level and S3 will be a potential exit level.
The main pivot levels (PP), Resistance (R1, R2, R3) and Support (S1, S2, S3) are obtained through mathematical calculations and not graphical observations.