Trading the Pivot explained by professional Forex trading experts the “Trading the Pivot” FX trading team.

Trading the Pivot?

Trading without support and resistance levels can be akin to driving without a seatbelt. Downtrends can stop dead in their tracks and uptrends can quickly reverse when price runs into a strong enough impediment. And without knowledge of key support and resistance levels, traders run a very large risk of letting a winning trade turn into a victim.

The justification for changes in order flow around support and resistance levels is logical. If traders believe a support or resistance level to be strong enough, they will often place their stop or limit orders nearby. When price runs into these groupings of stops or limits, the flow of orders for a particular market can become greatlyaffected, causing rapid price reversals.

With many subjective areas of support and/or resistance, this potential benefit of these levels can become marginalized. Because subjective levels are often less common, and less seen by traders, they can entertain less activity. Objective levels are often seen by more traders, can be planned around accordingly, and can even adapt to automated trading activities that don’t require trader interaction. Nowhere is this more prevalent than with Pivot Points.

The Genesis of Pivot Points

For the majority of markets’ lives, computers were not available on a mass scale. Market makers and floor traders still needed a way of keeping up with whether price was ‘cheap’ or ‘expensive’ on a relative basis, and from a simple mathematical calculation, pivot points were born.

Traders simply took the high, low, and closing price from the previous period and divided by 3 to find the ‘pivot.’ From this pivot, traders would then base their calculations for three support, and three resistance levels.

Trading the Pivot Conclusion

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