Let's keep reviewing the trading concepts. What is a pivot point in forex?
Got it thanks @victoria jonesIf put in simple words, it is simply the average of the high, low and closing prices from the previous trading day. On the next day, if the instrument is trading above the pivot point it indicates an ongoing bullish sentiment, while trading below the pivot point indicates bearish sentiment.
Very well explained, thanks. I love that picPivot points are specific price levels that can help traders predict the future direction of the market. Those price levels (or pivot points) are usually calculated based on the price action from the previous day. A pivot point is simply the average of the highest, lowest, and closing price of the previous day.
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The average that is calculated based on various price levels from the previous day is the main pivot point. Other key levels are derived from that main pivot point based on specific formulas. Those other levels represent support and resistance levels that the price could react to. The main pivot point is usually called P whereas the other levels derived from it are called R1, R2, and R3 for resistance, and S1, S2, and S3 for support.
The main pivot point represents the key level for establishing a bias. If the price is above it, the bias is bullish (to the upside), and if the price is below it, the bias is bearish (to the downside). If the price goes through the pivot point decisively to the downside, the bias changes from bullish to bearish, and vice versa.
Most platforms have a pivot points indicator, which displays those levels easily. You can also install a pivot point add-on to your platform for the same purpose if you do not find the indicator.
Pivot points can be used as standalone guidelines or as tools that help with other indicators. It depends on your style as a trader.