Pivot points are price levels significantly used as basis by an equity and futures trader in a technical chart. They are the ones behind the increased accuracy rate of the predictions in market movement.

Should their support and resistance levels be further analyzed, they tend to perform more exceptionally in the foreign exchange industry.

Due to differentials, bearish and bullish patterns may be distinguished at an early stage. Also, with their typically large amount, they are effective in guarding against cases of trading manipulation.

How Are Pivot Points Calculated?

Pivot points are often calculated in different ways. For this reason, arriving at a correct amount can be difficult.

Though they are often simply the arithmetic average of the elements including pivot points (P), high (H), opening price (O), and closing price (C), the market’s activity may make things confusing.

Mostly, the equation depends on the method preferred by a trader. A common one looks like this:

P = (H + O + L +C) / 4

Probabilities

Should there be records of pivot points in a chart, a trader will find it useful. Provided the calculations are accurate, he may predict which trades are more profitable based on them.

Should the numbers imply over 50% of success, he may consider making the exchange as his chance is raised. Otherwise, he may opt to pass up the opportunity.

Importance in Short-Term and Long-Term Trades

As mentioned, pivot points may be used to recognize bearish and bullish trends. Both for short-term and long-term trades, this can greatly heighten the chance of not entering a declining market.

Should the trend of prices either decline or rally up, a trader may determine. The amount of time may vary but it isn’t a factor.

From the report, he is influenced to execute his next actions accordingly. Losses due to poor predictions may be avoided. As being informed of the level prices prepares him, making strategic exchanges is possible.

The Ideal Trading Technique

All sorts of traders may benefit from using pivot points. A position trader may turn to his accounts monthly; a swing trader, weekly; and a day trader, daily.

Yearly data may even be used. In any case, the technique privileges a trader to determine when the onset of support and resistance levels is approaching.

This provides a heads up of the kind of trend that is coming. Regardless of the time interval, the objective is maintained. Due to this, it may be considered as the easiest strategy to adopt.

Content Source: http://www.mtrading.ng/ , A Forex trading Broker from Nigeria.