Pivot Calculator

 Forex Widget: The Pivot Calculator

One of the trading strategies that traders in the market depend on is support and resistance. It does not matter whether the trader is a retail trader or an institutional trader; the levels of support and resistance are watched by all. Support and resistance points are basically areas where prices are expected to stall after a sustained trend movement. At these levels, we can expect that prices can either retreat/bounce, or experience a breakout.

Support and resistance are determined in several ways, and one of the ways they can be determined is by the use of pivot points. Pivot points are areas of price action where it is expected that most buyers will exit their positions (resistance) or areas where most sellers will dump their positions for buyers to take over. These pivot points are respected and used by a large section of market players and that is why they generally hold.

They are thus used as profit target areas for traders who are already in trades, and as areas for trade entries for traders who want to trade reversals. They can also be used as guides for setting stops.

The Pivot Calculator is powered by Investing.com.

 

Pivot Point Calculators

The prices that correspond to the pivot points are usually calculated from highest, lowest and closing prices of the previous day’s price action. There are three ways to calculate pivot points:

a)    Manually, where you get the high, low and close prices and use a formula to calculate this. This must be done manually every new trading day and can be quite cumbersome for traders.

b)    The trader may also use pivot point calculators that do the job automatically. These are software that come as indicators which can be attached to the charts. They recalculate the pivot points automatically. However, there are many of them now online which are not very accurate. I have seen several of these.

c)     The third method which we shall discuss here is the use of the pivot calculator widget. This will still entail getting the high, low and close prices manually, but the widget performs the recalculation every time it is used. The trader can then apply these price levels to the chart using the line tool on the trading platform.

Using the Pivot Calculator

Here is how to use the pivot calculator widget.

The first and most important step is to obtain the high, low and closing price for the asset you will trade. Some widgets have upgraded the calculation to include the open price. It does not matter; what matters is that the algorithms used in the calculation are accurate. The easiest way to do this is to open the daily chart for the currency pair to be traded, then run the mouse cursor over the upper end of the candle (for a bullish candle) or the lower end of the candle (for a bearish candle). This action displays the high, low, open and close prices for the day. Recall that a candle represents one day’s price action on a daily chart.

Once these figures have been obtained, they are entered into the appropriate spaces, after which the trader clicks on the “calculate” button. This displays the three support levels, the central pivot and three resistance levels that constitute the pivot points. Some widgets add a fourth level. This is not necessary.

The next thing that the trader does is to use the trend line tool on the chart to plot the prices as pivot levels on the chart. The lines have to be colour-coded; this the trader can do by adjusting the colour parameters for the trend line tool. Here is an example of how the pivot calculator is used to plot the pivot points for the AUDUSD.

pivot calculator

These are the high, low, open and close prices for the AUDUSD on October 8, 2013. The pivot points are calculated below:

pivotcalc2

The next step is to plot these on the hourly chart for the currency pair as shown:

We can see the pivot points at work. A trader can decide to enter or exit trades at the pivot points shown, specifically at ..

Adam

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Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

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