By James McKee
Pivot points are a vital tool in the trader’s arsenal and can be a real “light in the dark” when you are seeking insight into a possible trade. Before attempting to utilize pivot points however you must have a good grasp of support and resistance levels. Support levels are points at which price decline is continually rejected, and Resistance levels are points at which a price increase is continually rejected. When considering both the support and resistance levels together this is called examining a channel, typically price trends will rise and fall within the channel for hours or days at a time.
Utilizing support and resistance when trading is typically accomplished by waiting until after a resistance level has been pushed but not broken a few times. This enables the trader to determine the likely behavior of the pair in the near future and determine the best point at which to enter a trade. The absolute best place to enter a trade is at the bottom of a bearish candle. Pivot points are ultimately a series of support and resistance points identified on a chart. Understanding how to determine which pivot points are relevant to your trading strategy is key to making a profit.
Of course this is one of those tools that is useless without a proper stop loss and take profit figure to correspond with the amount of risk you are willing to take. No strategy is full-proof but identifying, marking and utilizing pivot points will allow you to make an informed decision with regard to where you enter a trade. Making a mistake such as those made without being properly informed can be very costly. Stay informed and utilize every tool at your disposal, we do not trade for excitement…we trade for profit. Keep these things in mind the next time you go to enter a trade!
About the Author
Author is a Forex trader and financial analyst residing in Denver, Colorado. To stay up to date on all the latest developments in the financial world and beyond be sure to check out the forex exchange rates regularly.
