Pivot Point Trading
Forex trading is sometimes an art and sometimes a science. The art part of it comes from the fact that many people use indicators in terms of news as to when they want to make their trade. Economic news that projects a lowering in one type of currency or a strengthening or another are the kinds of news items that people love when it comes to the art of Forex trading. The science of Forex trading is quite a bit more quantitative in nature for obvious reasons and if you want to get really quantitative, there is no better strategy to do so than the pivot points. What are pivot points exactly? Read on to find out!
Pivot PointsA pivot point is basically a value around which it is expected that trends will reverse or breakout and therefore it is a point of a lot of importance around the quantitative day trading that many people do. The idea is to use the numbers for the previous day to calculate the different values that will be of importance in the area and therefore use those calculated numbers to make the trades for that specific day.
Calculating the Pivot PointsThere are seven values that need to be calculated. The pivot point itself and then three support levels for the pivot point as well as three resistance levels for the pivot point. The data for the previous day is used in this and the main thing to keep in mind is that all four values from the previous day (open value, close value, high value, low value) are used in calculating the seven values. Using the following variables…
- O = open price from previous day
- C = closing price from previous day
- H = high value from previous day
- L = low value from previous day
- PP = (H + C + L) / 3
- S1 = 2PP – H
- R1 = 2PP – L
- S2 = PP – (R1 – S1)
- R2 = PP + (R1 – S1)
- S3 = L – 2(H – PP)
- R3 = H + 2(PP – L)