Pivot Lines are line of support and resistance which are very useful today’s forex trading. These lines help you to guess daily high and low. I would like to say it’s a road map for trade entry and exist. You trade entry near the pivot point will increase you trade confidence level. It is very simple to calculate the pivot point, you need to take out the previous day’s high, low and close points. Let me explain you the formula to calculate the S1, S2, S3, P, R1, R2, R3.
The pivot point= H+L+C /3
First area of support= 2P-H
Second area of support= P-(R2-S1)
3rd area of support= 2P- (2H-L)
Now Resistance can be calculated as below :
1st area of resistance= 2P-L
2nd area of resistance= (P-S1)+R1
3rd area of resistance= 2P+ (H-2L)
The above mentioned are very important thing for new trader or even if some old traders I am sure they don’t have the right formula to calculate. The move of market depend on fundamental levels, if there are no any economic new then market will move between two points which are R1 and S1. Mostly time I have seen the market move if it’s up the pivot point it will touch the first resistance and then come back retouch the pivot again and stayed on it for hours, then move little up and touch the support level depending on fundamentals.
If the price is at S1, it may touch S2 or back to pivot point, if the price touch the S2 it may touch the S3 or back to pivot point again. Same like can be in resistance, for example if it touch the R1 level it may touch the R2 level and further to R3 level or back to pivot point. Remembered always one thing it is not sure sometime to touch the pivot point, market can stay on any level, it may be support or resistance because many new factors affect the market.
Why the forex market take retracement and what is retracement…? Let me tell this very important factor of forex market. Forex market will take a strong retracement before continuing next move. 61.8% is a strong point on which market can retrace. Candlestick chat pattern are very popular to measure the resistance and support levels.