Forex pivot points: Pivot points are indicators developed by floor traders in the commodities market to determine potential turning points, which are also known as “pivots”.
Forex pivot points are calculated to determine levels in which the market could change from “optimistic” to “pessimistic” Forex currency traders see pivot points as markers of support and resistance.
When the market moves up and then pulls back, the highest point reached before it pulled back is resistance. As the market continues up again, the lowest point reached before it started back is support. In this way resistance and support are continually formed as the market fluctuates over time.
Forex pivot points are calculated as the average of the low, high and close from the preceding trading session.
There are some methods to calculate Pivot points including:
–Standard pivot points: Standard Forex pivot points include 5 levels (levels that are represented as distinct lines on charts). The median level, or middle line of the 5, is called the ‘pivot point'. The other 4 levels are found above and below the pivot point in the form of 2 support lines (S1 and S2) and 2 resistance lines (R1 and R2).
Pivot point (PP) = (High + Low + Close) / 3
Support and resistance levels are then calculated using the pivot point:
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)
–Woodies Forex pivot points: Woodies formulas give more weight to the closing price of the previous period. Those formulas are similar to standard formulas using 5 lines as well.
–Camarilla pivot points: The Camarilla formulas are similar to the Woodies formula. The formulas also use the previous day's close and range to calculate the support and resistance levels. The only difference is that you should calculate for 8 major levels (4 resistance and 4 support), and each of these levels should be multiplied by a multiplier.
–Fibonacci Forex pivot points: Fibonacci pivot point levels are determined by first calculating the pivot point (like you would with the standard method), then multiply the previous day's range with its corresponding Fibonacci level. It is based on the Fibonacci numbers series.
There are many free Forex pivot points calculators. Once you understand how pivot points work, you a can choose one of the previous methods and/or others.