Forex pivot point is a level in which the sentiment of traders and investors changes from bull to bear or vice versa. They work simply because many individual forex traders and investors use and trust them, as well as bank and institutional traders. It is known to every trader that the pivot point is an important measure of strength and weakness of any market.
Floor traders love pivot points. They act as magnet for price movements
If you observe how price move during any trading session, you'll notice that price often stalls or stops at pivot points before resuming its movement. To calculate daily forex pivot points you need High, Low, and Close Price of the previous day. Simply set these three prices in the Forex Pivot Point Calculator and it will give the values.
Here are the used formulas for calculating daily pivot points:
P = (High + Low + Close) / 3;
R1 = 2 * P – Low;
R2 = P + (R1 - S1);
R3 = High + 2 * (P - Low);
S1 = 2 * P - High;
S2 = P - (R1 - S1);
S3 = Low – 2 * (High - P)
As you can see from the above formula, just by having the previous day's high, low and close you eventually finish up with 7 points, 3 resistance levels, 3 support levels and the actual pivot point.
If the market opens above the pivot point then the bias for the day is long trades. If the market opens below the pivot point then the bias for the day is for short trades.
The three most important pivot points are R1, S1 and the actual pivot point.
The general idea behind trading pivot points is to look for a reversal or break of R1 or S1. By the time the market reaches R2, R3 or S2, S3 the market will already be overbought or oversold and these levels should be used for exits rather than entries.
Forex Pivot Points calculator is compatible with Microsoft Windows 98/Me/2000/XP/Vista. Net Framework v2 is required to run the program. Free to download, use and distribute - no registration is needed.