How to Apply an Effective Forex Pivot Point Trading System

Pivot point in forex trading is an old strategy or technique that is used by traders in the stock exchange market as well as the forex market. In the earlier days, floor traders used to use these techniques to succeed. Yet such pivot points can be invaluable even today. Pivot points provide an invaluable method to gauge and know the trend of the market in general. Doing few calculations and a little bit of mathematics, a floor trader could easily understand the direction of the currency market.

Pivot Point is defined as a point at which the direction of the market changes in the day. Using cues from the previous days' closing, high and low values, one can estimate the pivot point series. Resistance and support levels.

Currency market behavior and reactions largely depends on the pivot number. This is because a lot of traders use the points as a guide for the market meaning, if you see the market opening above a pivot value you can expect the remaining part of the days trade to be short. The pivot number to note mostly is the ones that predict the next days trading session m1-m4. These points should be used as a gauge to note your exit points when you are in the market.

Here are three ways to use the pivot point in trading the forex:

1. Breakout trades: You can use this strategy when the market opens below a pivot value. Then you should wait for short trades by waiting for a break for values biased to the downside values. Your entry will be below the pivot while your stop loss should be placed above the pivot number.

2. Pullback Trades: Typically when the markets moves either above or below a pivot number it most time pullback on the pivot that was penetrated, before it finally moves through the pivot. At that point the market is pulling back you could wait for it to go through the pivot or you can place an entry order just above the pivot.

3. Advanced Breakout Trades: This strategy uses two or more exponential moving averages in combination with the pivot point to confirm the authenticity of a breakout trade before you place your order. This is an advanced technique in Forex trading using pivot points.