Pivot Points (Part 2) – Leading Indicator for Forex Currency Charts

Pivot points as a Leading Indicator on Forex Currency Charts (part 2) follows on from the very detailed part 1 tutorial that I published on the same subject (which you can find here).

PP's are such a large factor in my own trading day that I thought I would cover a little more detail.

It also gives me another opportunity to show you a couple more very recent examples. In fact I may end up posting quite a number of pages of examples as time goes on. I am pretty dependent on both pp's and Fibonacci levels in my own trading methods, simply because they are "leading" indications of where I need to be looking for reactions in price action, and also give me big clues for levels to be taking partial profits on open trades.

Pivot points work particularly well on the EUR/USD pair.

It is also important to realize that pivot points only work well in a market that is fairly range-bound.

They may provide some temporary effect to price action in a strongly trending market, however, it is normally short lived and the market tends to blow straight through the PP levels during a strong move.

 
The figure below is of the complete trading day for yesterday, the 28th March 2007.

If you have never seen pivot points on a chart before, then please take note that they are drawn on your chart at the START of the trading day. So you do have them to refer too throughout the trading day.

They are known as a leading indicator because they can be drawn on your charts ahead of time.

I have already covered how to calculate them in my previous post, and also provide a link to download them as an indicator for Metatrader 4 if you use Metatrader as your charting package as I do.

Note in this above example how the price action reacts to the various pivot point levels.

 
This next example below is the EUR/USD for the day previous to the example above, the 27th March 2007.

In this example above, note how effective the "hidden" resistance of the R1 level was. Please ignore the horizontal white line, it is the current price on the day I took the screen shot and means nothing in the context of this particular chart.

If you follow the price action out of the right hand side of this above example, and into the left hand side of the top chart (which was the next day), then you will notice that the R1 pivot point was only a few pips above the previous days R1 pivot point. Price action rallied back up to that level on the 28th, but once again was unable to penetrate, and the price then dipped sharply away, all the way down to the S2 pivot point level by the end of the trading day.

I hope that you find these pages on pivot points to be interesting. If you are new to pivot points then I hope you will draw them on your charts and watch the price action around them. As I have mentioned before, I do not use them much for trade entries, unless I have other supporting factors that contribute.

 

 

Thank you for reading, and I wish you good trading with your newly acquired knowledge of pivot points.