What are Pivot Points in Forex?

Understanding Pivot Points in Forex

Pivot points are technical levels calculated from the previous period's high, low, and close prices to identify potential support and resistance zones for the current period. Widely used by professional traders and market makers, pivot points provide a framework of key price levels where reversals, bounces, or breakouts are likely to occur. The standard pivot calculation derives a central pivot point (PP) and multiple support (S1, S2, S3) and resistance (R1, R2, R3) levels.

Calculation and Types

The classic pivot formula is: PP = (High + Low + Close) / 3. Support and resistance levels are then calculated relative to this central point. Common variations include Woodie's pivots (emphasizing closing price), Camarilla pivots (for intraday mean reversion), and Fibonacci pivots (incorporating Fibonacci ratios). Daily pivots are most popular, but weekly and monthly pivots provide longer-term support/resistance levels for swing traders.

Trading with Pivot Points

Price above the pivot suggests bullish bias; below suggests bearish bias. Traders buy bounces off support levels (S1, S2) and sell bounces off resistance levels (R1, R2). Breakouts through pivot levels with strong momentum signal continuation toward the next level. The central pivot often acts as the day's magnet, with price gravitating toward it. Combine pivots with candlestick patterns or RSI for high-probability setups.