Another technique to use pivot points in your forex trading strategy is to evaluate market sentiment.

This implies you can detect whether traders are more likely to purchase or sell a currency pair.

All you’d have to do is keep your eye on the pivot point. It may be compared to the 50-yard line on an American football field.

You can tell if buyers or sellers have the upper hand based on which side the ball (in this example, pricing) is on. If the price breaks through the pivot point to the upside, it indicates that traders are optimistic on the pair, and you should begin purchasing it. Here’s what happened when the price remained above the pivot point.

In this case, the EUR/USD pair gapped up and opened above the pivot point.

The price then continued to rise, smashing past all resistance levels. If the price breaks through the pivot point and falls to the bottom, you should begin selling the currency pair as if it were Enron or Theranos shares. If the price falls below the pivot point, it indicates that sellers have the upper hand for the trading session.

Let’s take a look at a GBP/USD chart.

                                           

The price tested the pivot point, which held as a resistance level, as shown in the chart above. The pair then continues to fall lower and lower.

If you had acted on the fact that the price remained below the pivot point and sold the pair, you would have made a tidy profit. GBP/USD fell about 300 pips!

Of course, this is not always the case.

There are occasions when forex traders appear to be bearish on a pair, only to have the pair reverse and break through to the upside.

                                             

If you observed the price breaking downward from the pivot point and sold, you would have had a very terrible day.

Later in the European session, the EUR/USD began to rise, finally breaking past the pivot mark. Furthermore, the pair remained above the pivot point, demonstrating how buyers were rockin’.

The way forex traders feel about a currency can change substantially from day to day, and even from session to session.

This is why you cannot just buy when the price is above or sell when it is below the pivot point.

If you employ pivot point analysis in this manner, you should combine it with additional indicators to help you assess overall market mood.