There are many forex traders who just use pivot point in their forex trading. One cannot imagine about their profitable trades they pull. Pivot point is just the central point. Pivot point plays a major role in online forex trading. It helps to find the support and the resistance level in any price chart. Pivot point helps the traders to get an idea were the markets are heading. The arithmetic calculation is very simple to calculate. You require close, high and low prices to get a series of points. With the help of these points support and resistance level is calculated. The pivot points levels calculated from them are known as the pivot levels.
Forex traders always engage themselves to find the support and the resistance level which can be above the pivot point or below the pivot point. In a market the pivot point, support and resistance levels indicate a turning point in price movements. When the market is declining the pivot and the support level will show a level for stability of the low price or the resistance to decline further. When an uptrend is seen in market then the pivot point and resistance level indicate the ceiling level of the price and the uptrend will not continue for a longer period of time which may lead to reversal.
Pivot point can help you in generating profitable trades .They can determine the type of trading to be expected for the day. For example if the market opens above the pivot point then one can expect long trades (bullish )and if it opens below the pivot point then definitely short your positions (bearish).
Now the question arises is that how do you calculate the Pivot points. In a very simple manner pivot point is calculated by adding the high, low and closing price of the market and then dividing by 3 to obtain the average for the particular day. Sometimes pivot point also includes the opening prices i.e. the open, low, close and high of the market divided by 4 to get the pivot point. Then these prices are used to calculate the support and the resistance levels as well as the pivot points.