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596 Pivot point trading is an important investment strategy that incorporates complex financial calculations. Traders are predicting the opportunities that can arise between periods of fluctuations or pivots. Essentially, traders are trying to understand whether the asset will remain on course or pivot in a certain direction. While predicting comes with market risks, there is great foresight that is obtained when working with a pivot point trading strategy.

Ideal for currency and day trading

Forex investors work with pivot points regularly, as they can track multiple currency fluctuations at the same time. This also helps them visualise movements better while calculating their next move in their portfolio. They can then add new options within their tables, while incorporating the information from the pivot points.

Technical components to Pivot Points

There are critical technical details that traders should be familiar with when dealing with pivot point trading. Daily pivot points can be calculated using these tools, so as to provide a more comprehensive picture of regular pivoting:

PP (Pivot point) – This is the base level pivot point or the middle point in the table.

R1 (Resistance) – This is the first pivot level above the base level.

R2 – This is the first pivot level above R1 and the second pivot level after PP.

R3 – This is the first pivot level above R2 and the third pivot level after base PP.

S1 (Support) – This is the first level below the base PP level.

S2 – This is the first pivot level below S1.

S3 – This is the first pivot level below S2.

Upon adding all the inputs from these 7 points, traders can see a clearer picture.

The resulting graph can provide all the information needed to review the market fluctuations on a regular basis. Plotting these points on the chart can uncover nuanced pivot point trading opportunities that may arise regularly.

Calculating the points to plot

To understand where you should plot your levels, traders can use the following formulae.

Pivot Point (PP) = (Daily High + Daily Low + Close) / 3

R1 = (2 x PP) – Daily Low

R2 = Pivot Point + (Daily High – Daily Low)

R3 = Daily High + 2 x (Pivot Point – Daily Low)

S1 = (2 x PP) – Daily High

S2 = Pivot Point – (Daily High – Daily Low)

S3 = Daily Low – 2 x (Daily High – Pivot Point)

Traders should calculate PP first, and then move on to other formulae for R and S calculations.

With all the points calculated, traders can then review the information on a graph. As these metrics can become increasingly complex, it’s ideal to work within these parameters. If the PP number is incorrect, it may throw off all other numbers.