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It is useful to have a map and be able to see where the price is relative to previous market activity. In this way we can see how traders and investors think at any given moment, but also give an overview of where the market is going during the day. This information can help us choose which way to trade.
Pivot points, a technique developed by floor traders, help us see where the price is relative to previous market movements.
By definition, a turning point is a turning point or condition. The same is true for the Forex market, where the turning point is the level at which market sentiment changes from “bull” to “bear” or vice versa. If the market breaks this level, then the feelings are said to be a bullish market and are likely to continue upwards, on the other hand, if the market breaks this level, then the feelings are a month and it is expected to continue downwards. Also, at this level, the market is expected to show some kind of support / resistance, and if the price does not break the turning point, a possible jump from it is convincing.
Pivot points work best in highly liquid markets such as the spot currency market, but can also be used in other markets.
Pivot Points
In short, the turning point is a level at which the thinking of traders and investors changes from bull to bear or vice versa.
Why does PP work?
They work simply because many individual traders and investors use and trust them and bank and institutional traders. Every trader knows that the turning point is an important measure of the strength and weakness of any market.
Calculation of turning points
There are several ways to reach the pivot point. The method we find the most accurate result is calculated by taking the highest, lowest, and closest averages of the previous period (or session).
Pivot point (PP) = (High + Low + Close) / 3
For example, take the following EUR / USD data from a previous meeting:
Clear: 1.2386
High: 1.2474
Down: 1.2376
Connect: 1.2458
It would be PP,
PP = (1.2474 + 1.2376 + 1.2458) / 3 = 1.2439
What does this figure tell us?
Simply put, if the market trades above 1.2439, the Bulls say they have won the battle by raising prices further. If the market trades below this 1.2439, the bears will win the battle by lowering prices. In both cases, the situation is expected to continue until the next meeting.
Since the Forex market is a 24-hour market (day-to-day or not-open), there is an eternal struggle to decide when we should choose open, close, high and low from each session. From our point of view, the times that give more accurate forecasts open at 00:00 GMT and close at 23:59.
In addition to the calculation of PP, there are other levels of support and resistance that can be calculated by taking PP as a reference.
Support 1 (S1) = (PP * 2) – H
Resistance 1 (R1) = (PP * 2) – L
Support 2 (S2) = PP – (R1 – S1)
Resistance 2 (R2) = PP + (R1 – S1)
Here, H is the highest level of the previous period and L is the lowest level of the previous period
Continuing with the above example, PP = 1.2439
S1 = (1.2439 * 2) – 1.2474 = 1.2404
R1 = (1.2439 * 2) – 1.2376 = 1.2502
R2 = 1.2439 + (1.2636 – 1.2537) = 1.2537
S2 = 1.2439 – (1.2636 – 1.2537) = 1.2537
These levels needed to record support and resistance levels for the current session.
In the example above, the PP was calculated using data from the previous session (previous day.) Thus, we were able to see the possible levels of resistance and support during the day. However, these levels can also be calculated using previous weekly or monthly data to determine. By doing this, we can see the feelings for a longer period of time. We can also see possible levels of support and resistance over the course of weeks or months. The weekly or monthly calculation of the pivot point is mainly used by long-term traders, but can also be used by short-term traders, which gives us a good idea of the longer-term trend.
S1, S2, R1 and R2 …? Targeted alternative
As already mentioned, the turning point zone is a well-known technique and works simply because it is used and trusted by many traders and investors. However, other support and resistance zones (S1, S2, R1, and R2,) are subjective in some way to predict a support or resistance level by some mathematical formula. It is difficult to trust them blindly because the formula goes beyond this level. For this reason, we have created an alternative way to map our time frame in a simpler, but more objective and effective way.
We calculate the turning point as shown earlier. However, our levels of support and resistance are drawn differently. We raise the previous session to higher and lower levels and draw these levels on today’s chart. The same thing is done with the session before the previous meeting. So we will draw our PP and four more important levels on our schedule.
LOPS1 is the lowest level of the previous session.
HOPS1 is the highest level of the previous session.
LOPS2, low session before the previous session.
HOPS2, the highest session before the previous session.
PP, turning point.
These levels will tell us the strength of the market at any time. If the market trades over PP, the market is considered a possible upside. If the market trades over HOPS1 or HOPS2, the market is on an upward trend and we are only taking long positions. If the market trades under PP, the market is considered a possible downtrend. If the market trades under LOPS1 or LOPS2, the market is on a downward trend and we should only consider short trading operations.
The psychology behind this approach is simple. We know that for some reason the market stopped there to go higher / lower in the previous session or the previous session. We do not know the reason and we do not need to know. We only know the truth: the market has turned upside down at this level. We also know that traders and investors have memories, they remember that the price stopped there before, and the probability is that the market will come back from there (maybe for the same reason, maybe not) or at least find support or resistance at these levels.
What is important for his approach is an objective measurement of support and resistance levels; these are not just levels derived from a mathematical formula, the previous value is reversed there, so these levels are more likely to be effective.
Our mapping method works on both market conditions, trends and side conditions. In the Trend market, this helps to determine the strength of the trend and trade at significant levels. In side markets, this shows us the possible return levels.
How do we use our mapping method?
We use the Mapping method in StraightForex in three different ways: trend identification (a measure of trend strength), a trading system that uses significant levels of price behavior as a trading signal, and setting a risk-reward ratio (RR) relative to any previous market location. a trade.
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