Top Pivot Point Strategies

Pivot point analysis can predict not only price movements but also help time entries and exits correctly to develop a risk management strategy. The analysis is based on historical currency pair trends and it enables traders to place orders based on forecasted future trends. In this article, we discuss the top pivot point strategies and the steps traders can use to apply them in forex trading.

 

What are pivot points in forex?

Pivot points are technical analysis indicators that can identify support and resistance levels in the market. Pivot points are calculated based on the average of the previous day's high, low, and close prices. Pivot point itself is the central level, with several support and resistance levels above and below it. These levels are known as the first, second, and third levels of support and resistance. The trader can use these levels as potential entry and exit points for their trades.

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Some pivot point strategies for forex trading

 

1. Pivot point breakout strategy

The pivot point breakout strategy involves identifying support and resistance levels to place an order at the potential breakout point. Traders need to look for levels where the price is likely to break through support or resistance and continue moving in the same direction.

• If the currency pair price breaks below the support level, it indicates that the market is going to fall further.
• If the currency pair price breaks above the resistance level, market may rise further.
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2. Pivot point swing trading strategy

The pivot point swing trading strategy uses pivot point levels as a guide to enter and exit short-to-medium term trades. Since swing trading is a trading strategy where traders hold positions for several days to capture medium-term market movements, pivot points in medium-term help traders identify when a market is strongly trending, ranging or reversing. If the market is in a continuous uptrend (or downtrend), the trader can enter a trade at a level where the currency pair price retraces to the support (resistance) level and hold this trade until the price reaches the next resistance (support) level and reverses. This strategy also aims to help traders identify ideal stop-loss and take-profit levels. During an uptrend, the trader can place a stop-loss order just below the support level and take-profit order just below the next resistance level. On the other hand, during a downtrend, the trader can place the stop-loss order just above the resistance level and the take-profit order just above the next support level.

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3. Pivot point bounce

When using the pivot point bounce trading strategy, the trader looks for price action around the pivot point and support and resistance levels. To implement this strategy, the trader should look at the previous day's price action and calculate the pivot point as well as support and resistance levels. The trader then has to monitor price action throughout the trading day, looking for a bounce off from one of these levels as a potential trading opportunity.

• If the currency pair price bounces off from the resistance level, it will indicate a bearish reversal.
• If the currency pair price bounces off from the support level, it indicates a bullish reversal.

This graph has been recreated from the original source. Please note this image is a representation only and is not provided as general or personal advice.

 

4. Pivot point MACD strategy

The pivot point MACD (Moving Average Convergence Divergence) strategy can identify potential trading opportunities based on the crossover of MACD and pivot points. The pivot point MACD strategy combines these two indicators by waiting for the MACD line to cross above or below the signal line and then looking for a pivot point to confirm the trend direction. To place a long (or short) order, the trader would wait for the MACD line to cross above (below) the signal line and the price is to trade above (below) a pivot point, for a bullish (bearish) signal confirmation.

This graph has been recreated from the original source. Please note this image is a representation only and is not provided as general or personal advice.

 

5. Pivot point RSI strategy

Traders can use the pivot point levels and the RSI to identify potential trade signals. The basic idea is for traders to look for a combination of a pivot point level and an RSI reading that indicates a potential reversal in the market. For example, if the market is in a downtrend and the RSI is also below 30 (oversold), the trader will look for a pivot point level to act as support and indicate a potential uptrend reversal to place a long order. Conversely, if the market is in an uptrend and the RSI is also above 70 (overbought), the trader will look for a Pivot Point level to act as resistance and indicate a potential uptrend reversal to place a short order.

This graph has been recreated from the original source. Please note this image is a representation only and is not provided as general or personal advice.

 

Enhance your trading skills using pivot point strategies

Pivot points are widely used by forex traders for predicting market trends. The trader can apply pivot point analysis to a wide range of timeframes, from short-term to long-term trading strategies. Sign up for a live trading account or try a demo account.