Pivot Point Trading - a Forex Trading Strategy

Forex Trading Strategy

Pivot point trading is a kind of Forex trading strategy that was used long back by Floor traders. It was a simple and easy way to be used by the floor trades to determine where the market was heading during the course of the day with few simple calculations.

However, in today’s scenario, the pivot point is a level which identifies the changes in the market at day time. It is also known as day trading. With the help of some mathematical calculations and previous days low, close and high series of points are derived. The points offer a significant support and resistance level. The resistance level and pivot level support calculated from these points are jointly known as pivot levels and are useful in Forex trade.

Pivot points are so popular because they are predictive and are used by many traders in Forex. You can take the help of previous day points to calculate the probable turning points of the present day. There are a lot of ways to trade in forex by making the use of pivot points. Discussed below are few of them that determine why some points are good and some are bad in certain situations:

The breakout trade:
At the start of the day, we are below the pivot point, so we go for short trades. Then, a channel is so formed that you must be looking for a breakout of the channel, preferably to the downside. In this type of trade, you will have to place your sell entry order just below the lower channel line. On the other hand, a stop order just above the upper channel line forms. This is quite a good technique for you. However, it may not be suitable for the day, does not mean that it is not apt for the next day as well.

The pullback trade:
This is also one of the good step-ups. In this type of trade, the entry order is placed below the pullback (most recent low) whereas a stop is then placed above the pullback (which is the most recent high peak).

Breakout of resistance:
As the day moves ahead, the market starts heading towards a target and forms a channel (congestion area). This is also a good trade set up. In this, you have to place an entry order just above the upper channel line and a stop order just below the lower channel line.

These are few foreign trading strategies that work on pivot point successfully.