Do Not Use Pivot Points When Trading The Forex!

by dmeadows

The biggest financial market in the world is the FOREX! If you are looking to get into forex trading or are looking for a forex opportunity, make sure you do not take any forex training or forex training systems that include methods that use pivot points. I DO NOT USE PIVOT POINTS! I DO NOT USE PIVOT POINTS AND YOU SHOULD NOT USE PIVOT POINTS!!

Here is why! First what is a pivot point? A pivot point is a technical indicator derived by calculating the numerical average of any financial instrument, using the high, low and closing prices.

How to Calculate Pivot Points
There are several different methods for calculating pivot points, the most common of which is the five-point system. This system uses the previous days high, low and close, along with two support levels and two resistance levels (totaling five price points) to derive a pivot point. The equations are as follows:

R2 = P + (H - L) = P + (R1 - S1)

R1 = (P x 2) - L
P = (H + L + C) / 3
S1 = (P x 2) - H
S2 = P - (H - L) = P - (R1 - S1)

Here, "S" represents the support levels, "R" the resistance levels and "P" the pivot point. High, low and close are represented by the "H", "L" and "C" respectively. Note that the high, low and close in 24-hour markets (such as the FOREIGN EXCHANGE) are often calculated using New York closing time (4pm EST) on a 24-hour cycle. Limited markets (such as the NYSE) simply use the high, low and close from the day's standard trading hours.

THE reason I don't use pivot points is because they are nothing more than a FIBONACCI. YOU SHOULD NOT USE PIVOT POINTS FOR POINTS OF ENTRY, which is what a lot of trainers are teaching their students to do!

Many forex trading strategies use a combination of pivot points and Fibonacci's. HOW ARE Fibonacci's SIMILAR TO PIVOT POINTS?

Fibonacci's

In technical analysis this tool is used by most to try and predict a retracement of two extreme points (a low to high or high to low move) to a Fibonacci ratio of 23.6%, 38.2%, 50%, 61.8%, 78.6% or 100%. There are also Fib extensions such as the 1.27%, 1.618% and 2.618%.

The thought is that a trader will be able to identify a strategic or specific point in a market price pull back and in effect target price positions for stop losses or take profits.

While it is true that the above can and does happen, the truth of the matter is that NO one can tell exactly which Fib Level (price point) will be the one that turns the market. When you look at them they all look good. So what traders have done in an effort to find the magic fib level that will turn the market is to employ other strategies to help them pin point the exact Fib (price point) that will be there target.

These strategies include: Looking in the past at previous price points of Support and Resistance. They use Trend Lines that overlap on a Fib Level. They will look for overlapping Fib Levels. They will look for Moving Averages and other Lagging Indicators to help them see which Fib Level is going to turn the market.

While there may be some success with using these techniques the reality is no one knows which fib level will turn the market! The same holds true for those who use pivot points, they do not know at which pivot point the market will reverse or continue! This is why I do not use pivot points as points of entry!

About the Author

The author of this article is a proven 7 year forex trader and has trained new and experienced traders all over the world. For more information on this incredible forex mentor and 3 other key forex trading elements **CLICK HERE**

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