Having a map with the key points drawn on our preferred time frame is something that would help us to locate the sentiment of the market at any given time of day. The trader could get an idea of \u200b\u200bwhere the market is going during the day and that she helped in making investment decisions.
pivot points, a technique developed by floor traders, help us to see just the price action in relation to the previous trading day. How
by definition, a pivot point is a turning point or condition. This definition, applied to the Forex market, shows just a price level close to the market sentiments change qualeil from bull to bear or vice versa. If the market breaks this level up then the sentiment is confirmed to be the bull and most likely will continue its journey upwards, on the other hand, if the price action violates down a pivot level, then the sentiment is bearish and a good chance the price will continue its trend lower market levels.
Pivot Points I will then work as levels of support / resistance and, if the price fails to go beyond them, a rebound (profitable) from these points is plausible. The Pivot Points
works especially well on very liquid markets (the Forex is one of them) but the strategy can be applied easily on any market.
why the PP work is to be found mainly in the fact that many traders and investors (including institutional) use them and believe in this instrument as a measure of strength or weakness of a market.
Calculating Pivot Point:
There are several ways to calculate the pivot point, but the method that produces better results is calculated using the average of HIGH, LOW and CLOSE the previous period:
Pivot Point (PP) = (High + Low + Close) / 3
For example, assume that cross the EUR / USD has achieved in the previous day, the following values:
Open: 1.2386 High
:
1.2474 Low: 1.2376
Close: 1.2458 The PP would then
:
PP = (1.2474 + 1.2376 + 1.2458) / 3 = 1.2436
What about this issue?
It simply tells us that if the market "play" more than 1.2436, traders bullish on those bears are winning the battle to push prices upward.
Likewise, if the market moves its action under the level of PP (1.2436), then there are sellers who are having the upper hand. In both cases, and this is the most important thing, the market conditions are most likely the same until the next session.
And in the case of markets such as Forex, open 24 hours (in ie where there is no opening and closing any day)? In this case there is the eternal debate about the best time to be taken to establish the daily session, but many parties are agreed that the time period that produces the most accurate "predictions" is one that runs from 00:00 GMT at 23:59 GMT.
Calculating Pivot Points does not stop there since, in relation to the point just calculated, you can find other levels of support / resistance:
Support 1 (S1) = (PP * 2) - H
Resistance 1 (R1 ) = (PP * 2) - L
Support 2 (S2) = PP - (R1 - S1)
Resistance 2 (R2) = PP + (R1 - S1)
Continuing with the example, then we have:
S1 = (1.2436 * 2) - 1.2474 = 1.2398
R1 = (1.2436 * 2) - 1.2376 = 1.2496 R2 = 1.2436
+ (1.2496 - 1.2398)
= 1.2534 S2 = 1.2436 - (1.2496 - 1.2398) = 1.2338
where R1, R2, S1 and S2 are the two main levels and two resistance levels of intraday support for the current session. Generally, these levels are calculated on a daily basis (ie taking High, Low and Close previous day) but nothing forbids us to calculate also on weekly basis and / or monthly. In doing so then we would be able to assess the market sentiment on longer periods of time so as preferred by long term traders.
Summary: *
these levels tell us about the strength or weakness of the market at any given time;
* if the market moves up (down) than the PP, there is a possible uptrend (downtrend) * if
the market moves up (down) more than R1 or R2 (S1 or S2) then there is an uptrend (bearish) and thus the trader should look good from opening short positions (upward) positions and consider only upward (downward).
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