Pivot Point Analysis-A Powerful Tool!
Pivot Point Analysis is one of the most robust and proven market analysis method. It works for all types of markets whether stocks, forex, futures, options, commodities or ETFs that have an established range. Range is the high and low of a given trading session.
The importance of these high and low formed in a trading session cannot be under emphasized. High is the reference point that shows buying out of greed while low is a reference point that shows selling out of fear. Fear and greed are the two emotions that rule any market.
For calculating the pivot points for any trading session, we use the High (H), Low (L) and the Close (C) of the previous session.
Unlike the stock market or the futures market that has an official open and close, forex is a 24 hour market with no open and close. We can take the N.Y Bank Settlement Time of 5:00 PM EST as the close of the day and 5:05 PM EST as the open of the next day while calculating our daily pivot point levels. Most of the time, we need to calculate only up to S2 and R2 and S3 and R3 levels would not be required.
R3 is the extreme resistance level that is usually caused by the news driven price shock and most of the time does not come into play. R2 is the level where the price action mostly experiences significant resistance. However, in case of a bearish market, price action will most often fail to break the resistance level R1.
Similarly in a bullish market S1 is important while in a bearish market S2 is important. S3 rarely comes into play and is only effective in an extremely bearish market caused by a news driven event.
Feeling analysis paralysis due to information overload? Read the next article to discover how to filter this information overload!
Article Source: FxTradingStock.com
About the Author
Mr. Ahmad Hassam has done Masters from Harvard University. Get these 3 Swing Trading Systems FREE. Master these highly profitable Candlestick Patterns with this FREE 82 page PDF Candlestick Guide.
by: Ahmad Hassam
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Word Count: 326
Date: Sat, 20 Nov 2010
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