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Pepperstone offers a wide range of resources to our valuable clients to help create the best possible trading experience. Team up with the best. But what if, in aggregate, traders were consistently on the wrong side of a trend? Now, that's something worth using. And it is publicly available information that can help you become a more consistent trader.
From the central pivot, there are resistances projected above and supports projected below. A little known fact is that pivot points, contrary to other technical indicators, originated within trading pits of equity and futures exchanges. Perhaps this pragmatic origin is the reason why pivot points remain one of the most useful indicators out there. Take note that pivot points can be calculated for any time horizon.
Traditionally, pivots were calculated based on daily data, but within FX this might not be the best or only way to employ them. But more on this later. Once these calculations are clear, we can explore the actual significance of the levels. If resistances and supports are actually significant and not random , then we should find robust statistics to support this fact.
With pivot points—along with their statistical edge—we can define high and low in a very robust way. You know that the odds are in your favour if you are a buyer at S1. If price rallies all the way past the central pivot and reaches R1, you might want to take some risk off the table, because R1 is, more often than not, the high for the day. The same rationale goes for S2 and R2. If price exceeds S1 and reaches S2, the odds are even more tilted in your favour.
Buying at S2 with a target at R1 is another solid way to exploit the statistical edge within pivots. We can see how R1 contained price for two days in a row, and presented an excellent entry point.
With a tight stop above R1, it is possible to structure trades with an advantageous risk: Within an uptrend, R1 and R2 tend to get surpassed, as there is more upwards pressure in the market. In an uptrend, it makes sense to use dips to the central pivot or S1 to get long. In reality, there are three main money centres that operate sequentially during a hour period. For this exercise, we have drilled down to 8-hour candles: In order to explore the actual significance of the levels, we have explored EurUsd 8-hour data from Jan 1st to Jan 1st This session data demonstrates how the market is fractal in nature: The savviest way to use this information is to collocate it in a trending market.
Red and green are daily supports and resistances. In this article, we have demonstrated how pivot points can be a versatile technical tool to help ascertain potential supports and resistances ahead of time, with statistical evidence to support it.
An intraday trader can use session data and daily data; a swing trader can potentially use daily data and weekly data; a position trader can use the weekly and monthly data in the same way because, as we have demonstrated, the market is fractal in nature. Traders can apply exactly the same logic on the smaller time frames as they do on the larger time frames. All that changes is the objectives for the trade. And being prepared will already put you in an advantageous position. The information provided here has been produced by a third party and does not reflect the opinion of Pepperstone.
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From Pit to Platform A little known fact is that pivot points, contrary to other technical indicators, originated within trading pits of equity and futures exchanges. To properly understand pivot points, we need to explore how they are calculated. Typically, there will be exporters and regional central banks active in this session. However, the liquidity is nowhere near as deep as it is during London or New York, and as such, the price action is not usually as interesting as it is during the other sessions.
The Asia session does have its moments though: But most of the time, this session is range-bound and consolidates whatever New York did. This is still the most important session of the day, for geographical reasons above all else. The Forex market experiences its peak in turnover as London passes the baton onto New York. However, whereas the London session tends to be a trendy session, New York has much more volatility and chop, so the trading strategies to deploy change significantly.
Furthermore, after 12pm in New York, liquidity starts to dry up quickly. Over to You In this article, we have demonstrated how pivot points can be a versatile technical tool to help ascertain potential supports and resistances ahead of time, with statistical evidence to support it.
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