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What does Pivot point indicate in forex Indicators?

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asked Jan 7, 2015 in forex indicators by anonymous
    

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Pivot points can be calculated for any time frame. That is, the previous day's prices are used to calculate the pivot point for the current trading day.

Pivot Point for Current = High (previous) + Low (previous) + Close (previous)
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The pivot point can then be used to calculate estimated support and resistance for the current trading day.

Resistance 1 = (2 x Pivot Point) – Low (previous period)
Support 1 = (2 x Pivot Point) – High (previous period)

Resistance 2 = (Pivot Point – Support 1) + Resistance 1
Support 2 = Pivot Point – (Resistance 1 – Support 1)
Resistance 3 = (Pivot Point – Support 2) + Resistance 2
Support 3 = Pivot Point – (Resistance 2 – Support 2)

To get a full understanding of how well pivot points can work, compile statistics for the EUR/USD on how distant each high and low has been from each calculated resistance (R1, R2, R3) and support level (S1, S2, S3).

To do the calculation yourself:

  • Calculate the pivot points, support levels and resistance levels for x number of days.
  • Subtract the support pivot points from the actual low of the day (Low – S1, Low – S2, Low – S3).
  • Subtract the resistance pivot points from the actual high of the day (High – R1, High – R2, High – R3).
  • Calculate the average for each difference.
answered Jan 11, 2015 by Admin (2,710 points)
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