May 16

Pivot point indicator. Forex trading explained.

Reading Time: 3 mins

More and more traders choose to do their business on the foreign exchange market nowadays. Due to this, the field has become increasingly spirited, even aggressive at times. Those without a bulletproof game plan exit in a timely manner, and only the strongest players survive the sometimes unpredictable waters of forex.

Therefore, staying on top of the game with innovative techniques can give you a well-deserved advantage over competitors. One such trick you can keep up your sleeve is represented by pivot point indicators. Here is everything you need to know what they are and how they can be used to maximize profits.


What Are Pivot Points?

To better understand what a pivot point indicator is and how it can be used on the trading floor, it is first essential to discuss the concepts of support and resistance. These are closely tied to the functioning of pivot point indicators. As you may already know by now, currency values fluctuate upwards or downwards.

After a price moves in one direction for a while, it may stop and turn the other way around. This mark is known as resistance, and it acts as a cap. The point of support is then calculated using historical data, and it refers to the particular position a value hasn’t fallen under. Together, the two are the basis behind technical analysis in the foreign exchange market.

The essential way to use these concepts is by looking for the significant areas of support in an uptrend and buying around them. Resistance comes into play in downtrends, and you will want to sell near its most relevant zones. Although there are plenty more aspects that come into play, this is the explanation in a nutshell.

Pivot points are simply indicators of support and resistance. They determine the levels on which the sentiment of the market could potentially change, becoming either bullish or bearish. A bullish market moves upwards, while a bearish one represents a decrease. Thus, they can also be referred to as the turning points of forex prices.

As a general rule, they combine rather nicely with highly liquid markets. For this reason, many forex day traders apply them so that their entry and exit points on a position are the most appropriate. Platforms such as MetaTrader 4 offer the possibility to download a pack of such indicators to use in your activities, but you can also program your own.


How to Use Them

As previously mentioned, pivot points indicators can be easily used in online trading. By using a trading platform such as the increasingly popular MetaTrader 4, you have the possibility to download preset algorithms that other users have designed and made available. And if you possess extensive coding skills, you can also contribute with your own to the community.

MT4 is developed in the MQL4 coding language, a variety that is specific to MetaQuotes Software. Its lines are specifically aimed towards the field of trading, but if you are skilled in IT, you can learn it and start writing personalized pivot point indicators. Nevertheless, for the less tech-savvy ones among us, presets will do just fine.

There are two main ways in which pivot point indicators can be used on MetaTrader 4, or any other trading platform that supports them. First, they are helpful when you need to gauge the general direction in which a trade is headed. A base pivot point is perfect for this, because it quickly indicates either bullishness or bearishness in the market.

Second, they can also be used to determine the type of position you are going to adopt concerning an investment. When bullishness is implied, you will want to go long, while bearishness calls for short-term action. When the market is at resistance, you can close your long trades, while the shorter ones need to end once support is neared.

Therefore, downloading pivot point indicators and using them with a trading platform is a viable method to manage risks and narrow the gap of uncertainty surrounding orders. While it has its misgivings much like any other approach, it is certainly preferable when the optimal degree of accuracy must be reached.


Final Thoughts

Due to avid competition, forex traders nowadays need to stay on top of their game with clever methods. Using pivot point indicators to signal market turning points is certainly one such variant. This customizable trading platform feature will help you buy and sell with more accuracy, which in turn will bring in a lot more money.


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