Pivot points are intended to provide you with some sense of where price is likely to go next based on its past history. They consist of a series of formulae that work off the closing numbers from the day before, or other periods of time.

Pivots give you an idea of how far price could potentially ‘breath’ in its next moves and which support and resistance levels you should be mindful as you execute your trading plan.

Whether you are trading on a daily, weekly, monthly or whatever basis, these zones give you an indication of ‘predictable’ price movements within those periods of time, based on historical evidence. Price can only go so far so fast based on its previous performance.

While others are contemplating their next trade based on whatever rationale they use, you will be making informed trading decisions the way the big dogs do. You will be buying and selling at times and at points the smart money is. So, you will have good company, as you plot your next trade. Sometimes no trade is the best trade, and this is where pivot points can help you stay out of trouble. They will invariably end up becoming strategic components of your currency trading strategies (a.k.a. forex trading strategies).

With pivot points, you can day trade or position trade with similar results – much better than what the dumb money achieve (or don’t) with their random attacks on the market. It is certainly a wise strategy to look at any market with a top-down approach – looking at further out time frames, and then working your way down to the lower levels. This will certainly give you the edge in making informed decisions based on psychological areas of trading activity, where traders took stands in recent memory.

It is always wise to employ pivot points with other aspects of technical analysis. Where you see a ‘confluence’ of indicators all pointing to consensus on where the latest move will end and the next one is likely to take place, that is precisely the moment you want to take action. At other times, it is best to not press enter, and save your trading account to see another trading day.

by Peter Bain
Forex Mentor