The first thing you’ll learn is how to calculate pivot point levels.
The pivot point and related support and resistance levels are determined using the open, high, low, and close prices from the previous trading session.
Because forex is a 24-hour market, most forex traders consider the previous day’s closure to be at 5:00 p.m. EST in New York.
Pivot Point Calculation
The calculation for a pivot point is shown below:
Pivot point (PP) = (High + Low + Close) / 3
Support and resistance levels are then calculated off the pivot point like so:
First level support and resistance:
First resistance (R1) = (2 x PP) – Low
First support (S1) = (2 x PP) – High
Second level of support and resistance:
Second resistance (R2) = PP + (High – Low)
Second support (S2) = PP – (High – Low)
Third level of support and resistance:
Third resistance (R3) = High + 2(PP – Low)
Third support (S3) = Low – 2(High – PP)
Remember that some forex charting software displays intermediate or mid-point levels.
These are mini-levels that exist between the main pivot point and the support and resistance levels.
Most charting software will accomplish this for you automatically. Simply ensure that your settings are configured to use the right closing time and price.
The forex pivot point calculator can be useful, particularly if you want to do some backtesting to check how pivot point levels have performed in the past. Remember that one of the benefits of using pivot points is that they are objective, making it simple to examine how prices react to them.
Following that, we’ll show you how to include pivot points into your forex trading strategy in a variety of ways.
Next Lesson: Pivot Points: How to Use Them for Range Trading
