Many people who day trade the forex markets use pivot points because they are lines on the chart that act as natural areas of support and resistance. You have the main pivot point as well as the S1 and S2 lines and the R1 And R2 lines (S = Support, R = Resistance). Each of these lines are useful, particularly the main pivot point, but they should not necessarily be used in isolation.

The main problem you have is that sometimes the price will hit one of these levels and reverse back in the opposite direction as people start to enter new positions or exit existing positions based on these levels. However there may be other occasions when the price simply moves straight through one of these levels, in which case you would be better off trading the breakout, rather than the reversal.

So the best way to help determine how the price will react around one of these levels is by using a few technical indicators to provide you with additional confirmation. Some forex traders use nothing more than pivot points and fibonacci levels to enter and exit positions during the day, but this is a very difficult skill to master.

It is generally much easier to use a few simple indicators alongside these pivot points. Let me give you a few examples to demonstrate this point.

One example might be where the price has moved strongly upwards throughout the day and is approaching the R2 line. Now ordinarily you may not have the confidence to trade the reversal if the price were to hit this line, but if the RSI and stochastic indicators were both well above the 80 level, or better still there was divergence on these two indicators, then this would be a good point to enter a reversal trade.

Similarly if the price fell all the way down to the S2 line during the first half of the day and there was strong a MACD divergence pattern, for example, then this would also give you confidence in entering a long position at this crucial support level. (Divergence is where the price makes new lows but the indicator in question, in this case the MACD, fails to make new lows).

So overall I would definitely recommend you add pivot points to your charts if you are a forex day trader, but be very careful. If you try and trade them on their own you will struggle to make money, which is why it’s worth using one or two additional indicators to help you find only the very best set-ups.

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Category: Finance/Currency Trading
Keywords: pivot points,support,resistance,forex,forex trading,currency trading,day trading,forex day trading