Forex Pivot Points Explained

  • There are Many different Pivot Points
  • Pivots are price levels or price areas where price changes direction
  • Camarilla is one of the best pivots available

Support and resistance zones are essential tools in Forex and CFD trading. Pivots define them. There are many appliances of support and resistance trading not just in Forex but also in other markets.

What are the Pivot Points

Pivot point indicator for MT4 are an essential part of Forex trading. Market participants define these levels, which are essentially zones of supply and demand. It is here where the bulls and bears will fight. Here the price can be submissive or reactive to a price level, where buyers or sellers match each other. There is even the pivot point arrow indicator which can plot arrows together with pivots.

We can differentiate between various pivot point indicators:

  1. pivot point standard indicator
  2. pivot point extra indicator
  3. pivot point history indicator
  4. pivot points leading indicator
  5. pivot point high low indicator
  6. pivot point reversal indicator
  7. pivot point buy sell indicator
  8. pivot point channel indicator

How do Pivot Points Work?

Pivot Point levels are an essential pillar of technical analysis (TA). The field of TA is based on patterns in price data, and S&R plays a key role.

Learning how to understand, recognise, use and trade based on S&R will, in our view, make your analysis and trading more robust on top CFD.

Sounds good, but what are pivots?

The simplest way to think about it is price levels or price areas where price changes direction or moves sideways.

In other words, S&R is a price level or a price zone where price has bounced. 

Why are the Pivot Points Important for Forex Traders

Support levels: 

  • Are always found below the current price. 
  • Indicate buying pressure.
  • Offer a potential bullish bouncing spot or a breakout.

Resistance levels:

  • Are always found above the current price. 
  • Indicate selling pressure.
  • Offer a potential selling bouncing spot or a breakout.

There are hundreds of indicators for pivot points. If a trader decided to place all of the pivots on the chart, then he or she would not even be able to see the price on the chart. Why? Because the price would vanish behind all of those levels. One of the best pivot point indicators is camarilla.

The market extremely well respects camarilla pivots. 

One of the main reasons is that institutional traders use it very intensively. The other reason is that the market naturally gravitates around the Camarilla levels and uses them as the centre and boundaries of daily and weekly price action.

The other advantages are that the Camarilla:

  1. It is generated each trading day automatically
  2. Defined levels of support and resistance
  3. Simplicity

Simply put, the Camarilla indicator provides well respected, simple, and automated levels of support and resistance. 

The most basic and simplistic definition of Camarilla is that it defines trend and range.

TREND: When the price is above the H3 and below the L3 zones. Downtrend. Uptrend is above the H3, and Downtrend is below the L3.

RANGE: the price is in a range mode when the price is between the H3 and L3 zones.

Traders can quickly define whether the MarketMarket is trending down or up or ranging by looking at the Camarilla indicator for a few seconds. 

How to Use Pivot Point Indicator

  1. If the Market opens inside  the L3/H3 levels, you must wait for the price to approach any of these two levels. If the higher H3 is hit, go short against the intraday trend in the expectation that the market will reverse. Protective stop-loss is above H4. If the Lower L3 level is hit first – go long against the trend. The defensive stop is below L4.

  1. Market Opens outside L3/H3. In this case, you wait for the MarketMarket to retreat through the L3/H3 level. Then you sell below H3 or buy above L3 using L4/H4 levels as you stop loss. In this case, you will be trading with the intraday trend.

  1. Look at L4/H4 levels to be breached, which would signal initiation of the sharp directional intraday market move. It means that you are going long if the price penetrates up through the higher H4 level or going SHORT if the price penetrates down through the lower L4 level.

What Did We Learn from the Pivot Point Article

Pivot Point Forex indicator is one of the best tools when it comes to defining support and resistance. With pivot points you can trade, manage your entries and exits. Just try not to be caught in the trap of overtrading. Camarilla is one of the best pivots available and it will help your trading decisions with clearly defined levels.

Common Questions on Pivot Point Indicator 

How to Calculate pivot points?

  1. Pivot point (PP) = (High + Low + Close) / 3.
  2. First resistance (R1) = (2 x PP) – Low.
  3. First support (S1) = (2 x PP) – High.
  4. Second resistance (R2) = PP + (High – Low)
  5. Second support (S2) = PP – (High – Low)
  6. Third resistance (R3) = High + 2(PP – Low)
  7. Third support (S3) = Low – 2(High – PP)

Is Forex Trading with Pivots Like a Casino?

Forex is not like a casino, and it is not entirely random. Occasional gamblers do not tend to have much of a game plan or strategy when gambling, and for this reason, they do not watch to win consistently. In essence, they pay the house to play. As a result, they don’t stack the odds in their favour.

Trading can be like gambling, or it can be like a business. The factor that makes the difference in whether or not you are approaching FX trading as gambling or business is whether or not you have an “edge”. 

In the casino case, they automatically have the edge because they make the game’s rules, and it’s structured so that they have the advantage. Forex trading is different because there are no defined rules (other than don’t get a margin call), so everyone can approach the activity their way. Using a sound system/strategy and correct money/risk management principles, you stack the odds in your favour, and you are building the edge. Additionally, if you have enough screen time, your odds can spike to 70/30 or even 80/20 in turn of winning with a proper use of pivot points.

Cheers and safe trading
Nenad

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