In forex, a pivot point is a price level, used to determine a currency pair's overall trend. It is often used as a critical support or resistance level, and traders may base their decisions on buying or selling a currency based on whether the price is above or below the pivot point.
Pivot points are calculated using the previous period's high, low, and close prices. There are several methods for calculating pivot points. Still, the five-point system is the most commonly used method, which involves calculating three resistance levels (R1, R2, and R3) and three support levels (S1, S2, and S3).
The pivot point is the primary support/resistance level, with the R1, R2, and R3 levels representing increasing levels of resistance, and the S1, S2, and S3 levels representing increasing levels of support. If the currency pair's price is above the pivot point, it is considered bullish, and if it is below the pivot point, it is considered bearish.
Traders may use pivot points to set entry and exit points for their trades and identify potential areas of support and resistance. Pivot points can be a helpful tool for traders, but it is essential to remember that they are just one of many factors that can impact the price of a currency pair and should not be used in isolation.