The pivot points are a technical analysis indicator used to determine the general trend of the market over different time frames. The pivot points themselves is simply the average of the high, low and closing prices from the previous trading day. We get the current values of the indicator from data in the previous period. This index is often based on daily, weekly or monthly charts. It is one of the main indicators used in Managed Forex Accounts, Forex Trading Signals, and it is among subjects discussed in the Training Course.
Pivot points’ period must differ from the price chart’s period by at least one period. If the time period is the same used in both cases, the indicator’s lines will look like a point and will not provide any information whatsoever. For example, if you put the indicator on the daily chart, then with each trading day you will see the indicators lines on the price chart. If the indicator’s period is less the price’s period, you will not see values at all.
When analyzing the market using this indicator, it is recommended to use many pivot points, monthly, weekly and even yearly. If two or more levels of the pivot points line up, it increases the strength of this line, and therefore, we should wait until the price actually tests the level before executing any trades.
Support and resistance levels, set using this indicator, usually lead to an accurate forecast of possible take profit and cut loss levels. Here are some rules when using this indicator:
-If the pivot points are close to the opening price and with the direction of the current price, it is likely that the trend will continue in the same direction.
– In low volatility or il-liquid markets, and when the price drops below the pivot points, one should avoid opening new positions, because the price will probably “re-test” that level, which is also very common in this context. If the driving forces are able to break this level, one should trade based on support and resistance levels of this indicator, and when the price re-tests the pivot point support or resistance level, then this practice will help entering the trade at a better price.
For long-term trading, traders must consider the pivot points’ weekly, monthly and yearly positions on the charts. It is clear that if the price was lower than those levels, one should expect beginning of a strong downward trend. On the other hand, if the price is higher than the weekly, monthly or yearly levels, it confirms that the price is in upward trend.