Fibonacci ... Pivot Point Trading (Part II)
Beginning with the main Pivot Point that is calculated from the previous day's key price points, the resulting support and resistance are subsequently derived from the following calculations. How is the pivot levels calculated? Beginning with the main Pivot Point that is calculated from the previous day's key price points, the resulting support and resistance are subsequently derived from the following calculations:
R1 (Resistance 1) = 2PP-Yesterday's Low. R2 (Resistance 2) = PP + (R1-S1). R3 (Resistance 3) = Yesterday's High + 2(PP-Yesterday's Low).
Main Pivot Point PP = (Previous Low + Previous High + Previous Close)/3.
Support 3 S3 = Previous Low-2(Previous High -PP). Support 2 S2= PP- (R1-S1). Support 1 S1 = 2PP - Previous High.
After calculating these points they are plotted on the currency price chart. Trader's can calculate the current days pivot points using the above formulas based on the previous day's price data.
Breakouts or bounces may be traded with pivot points. Once these pivot levels are calculated and plotted, they are used in much the same way as Fibonacci Retracement. These pivot points are often also used as profit targets. Pivot points also indicate whether the market sentiment is bullish or bearish. Traders also use pivot points as reference levels to provide information as to whether the current price is relatively low or relatively high within its expected price range for the day.
You can further refine your pivot point levels by using the S1, R1 and other levels. S1, S2 and S3 as well as R1, R2 and R3 are used as references in pivot point trading. For example, traders may look for long trading opportunities with the view that the price will reasonably move towards equilibrium around the main PP level if the price is near the day's S2.
Many traders use different time frames in their trading decisions. You can also calculate the pivot levels for a week and for a month time frame too. Instead of calculating the pivot points for the current day you can also calculated the above levels for 4 hour charts as well as 8 hour charts.
Both Fibonacci and Pivot Points are excellent technical tools that often encompass entire trading discipline in themselves. Just replace the day's highs, lows and the closing prices with the appropriate time frame highs, lows and closing prices when calculating the pivot points for the other time frames.
In an extremely bullish market condition, the pivot point can become the target low for the trading session. This number represents the true value of a prior session. It is important to understand that it can be used as an actual trading number in determining the high or the low of a given time period, especially in strong bull or bear market conditions.
Pivot point trading has been successfully used by traders in making trading decisions. Traders will step in and buy the pullback until that pivot point is broken by prices trading below that level. A retracement back to the pivot will attract buyers if the market gaps higher above the pivot point in an uptrending market. The opposite is true for the pivot point will act as the target high for the session in an extremely bearish market condition.
What you need to understand is the market psychology at any particular point of time. If you can do that you can become a master trader. Understanding what the herd is doing can help you decide what to do and what not do in your trading. Technically speaking, in a bearish market, the highs should be lower and the lows should be lower than in the preceding time frame. Generally prices come back up to test the pivot point if a news-driven event causes the market to gap lower after traders take time interpreting the information and the news. Sellers will take action and start pressing the market lower again if the market fails to break that level and trade higher. - 23212
R1 (Resistance 1) = 2PP-Yesterday's Low. R2 (Resistance 2) = PP + (R1-S1). R3 (Resistance 3) = Yesterday's High + 2(PP-Yesterday's Low).
Main Pivot Point PP = (Previous Low + Previous High + Previous Close)/3.
Support 3 S3 = Previous Low-2(Previous High -PP). Support 2 S2= PP- (R1-S1). Support 1 S1 = 2PP - Previous High.
After calculating these points they are plotted on the currency price chart. Trader's can calculate the current days pivot points using the above formulas based on the previous day's price data.
Breakouts or bounces may be traded with pivot points. Once these pivot levels are calculated and plotted, they are used in much the same way as Fibonacci Retracement. These pivot points are often also used as profit targets. Pivot points also indicate whether the market sentiment is bullish or bearish. Traders also use pivot points as reference levels to provide information as to whether the current price is relatively low or relatively high within its expected price range for the day.
You can further refine your pivot point levels by using the S1, R1 and other levels. S1, S2 and S3 as well as R1, R2 and R3 are used as references in pivot point trading. For example, traders may look for long trading opportunities with the view that the price will reasonably move towards equilibrium around the main PP level if the price is near the day's S2.
Many traders use different time frames in their trading decisions. You can also calculate the pivot levels for a week and for a month time frame too. Instead of calculating the pivot points for the current day you can also calculated the above levels for 4 hour charts as well as 8 hour charts.
Both Fibonacci and Pivot Points are excellent technical tools that often encompass entire trading discipline in themselves. Just replace the day's highs, lows and the closing prices with the appropriate time frame highs, lows and closing prices when calculating the pivot points for the other time frames.
In an extremely bullish market condition, the pivot point can become the target low for the trading session. This number represents the true value of a prior session. It is important to understand that it can be used as an actual trading number in determining the high or the low of a given time period, especially in strong bull or bear market conditions.
Pivot point trading has been successfully used by traders in making trading decisions. Traders will step in and buy the pullback until that pivot point is broken by prices trading below that level. A retracement back to the pivot will attract buyers if the market gaps higher above the pivot point in an uptrending market. The opposite is true for the pivot point will act as the target high for the session in an extremely bearish market condition.
What you need to understand is the market psychology at any particular point of time. If you can do that you can become a master trader. Understanding what the herd is doing can help you decide what to do and what not do in your trading. Technically speaking, in a bearish market, the highs should be lower and the lows should be lower than in the preceding time frame. Generally prices come back up to test the pivot point if a news-driven event causes the market to gap lower after traders take time interpreting the information and the news. Sellers will take action and start pressing the market lower again if the market fails to break that level and trade higher. - 23212
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. Try These Cash Printing Forex Signals From Heaven! Learn Fibonacci Retracement
posted by X - Men @ 7:07 AM
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