Traders use pivot points to determine where potential support and resistance levels are. Pivot points are interesting to use, because they are relatively simple to implement, but also because of their objectivity.
Using Pivot Points with Logic
Using pivot points is especially useful for short-term traders who are looking for small price movements. When a price approaches, you can choose to to trade the bounce or break of these levels. Pivot points work really well in very volatile and liquid markets, so they are ideal for trading forex. You can use them to determine the levels of potential entry, stops and take profit.
Why Using Pivot Points works
The main reason why they work is that most retail trades, institutional traders, investors and banks use and trust pivot points. Pivot points can be used as an important measure of strength or weakness in a currency pair. Pivots can also be extremely useful trading ranges or channels since many currency pairs usually fluctuate between these levels.
Do pivot points work all the time? The answer here is no. Just like any other tool, strategy or indicator, you need to use additional tools and gain knowledge of trading the market.
Because of the their sheer simplicity, pivot points definitely are a useful tool to add to your trading toolbox. It allows you to see possible areas that are likely to cause a price reaction. You’ll become more in sync to market movements and make better trading decisions. And as mentioned before in this article, using pivot point analysis alone is not enough. Educate yourself in other trading tools to, to reach the maximum of your capacities.