Pivot Points and Their Importance in the Forex

If you have been dabbling in the forex business for a little while, you must have heard or come across pivot points, a concept which has been of great help to traders in financial markets since they have been developed. If you are relatively new to the forex market, you might not be familiar with their uses and the advantages that knowing about pivot points provides but it is important that you do as they understanding about them provides essential assistance to currency traders in the forex.

So what are pivot points? Basically, pivot points are the point where the market 'pivots', meaning the point where the market goes into the direction opposite to its current trend. For instance, if the forex market is bullish then the pivot point will be the one where the market starts being bearish. Conversely, the point where the market starts to become bullish is the pivot point for market which has been bearish for a while.

Accurately predicting when the pivot happens is a useful skill for a currency traders everywhere as forecasting accurately the pivot point will allow a trader to decide effectively between trading or sticking it out thereby maximizing profits that can be earned and minimizing, or possibly eliminating, losses that can be incurred in the forex market.

So how does one determine the possible pivot point for the market in given day? Pivot points are calculated through a number of ways but it is most often - and most easily, determined by getting the average opening, closing and high points of the last trading day's market.

There are many more ways of acquiring the pivot point other through this process and there are also other information that can be gleaned from the set points but nonetheless, if one is to start with the concept of pivot points, being familiar with the said three points is a good place to start.

There are many trading strategies that can be applied with the use of the knowledge concerning pivot points. One such strategy is the breakout trade strategy wherein a trader buys if the market chart breaks through the resistance and sells the moment the rate falls below the point of support.

Another strategy worth mentioning is pullback trade strategy wherein one buys currencies which are taking a fall from a previous high. Be careful though as the fall of such currencies may only be momentary or worse, might just be the beginning of a long nose dive which will cause significant losses for a trader who has bought large volumes of the said currency.

Pivot points are essential tools for currency traders in the forex market as they help in the realization of the dream of every trader striving for success which is to maximize profits and minimize losses as knowing how to determine pivot points aids immensely in forecasting when changes that will affect currency prices in the market will happen.