22 Nov, 2006
Forex training- calculating pivot points
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Technical analysts and professional forex traders calculate pivot points in oreder to forecast an equity price nearing a support or resistance level. This tool is very important and helpful since it represents a point at which a major price movement is likely to happen. In order to become able to forecast these points, you need to calculate and interpret the different technical tools, such as the pivot points.
There are a few known ways to calculate pivot points, the most known and used among forex traders is the five-point system. To calculate by that system you should write down these five points: previous day's high, low and close, along with two support levels and two resistance levels. Next, fill-in the equations to get the pivot point-
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)
"S" stands for the support levels.
"R" stands for the resistance levels.
"P" stands for the pivot point.
“H” stands for High point.
“L” stands for Low point.
“C” stands for the closing point.
And here is another variation for calculating pivot point with the same five points by inclusion of the opening price: P = ((Today's O) + Yesterday's (H + L + C)) / 4
“O” stands for Opening price.
As you may have noticed, the opening price for forex is basically the last day’s closing price. The rest of the data can be calculated in the same manner as in the five-point system, except for the use of the modified pivot point.
