In forex trading, of course, we will be familiar with charts or graphs and we will always see the increase or decrease in prices that occur. If you beginners forex trader, you must know all about forex price movements like pivot points, support, and resistance.
In the forex price movement, there is a certain price level that can be used as the lowest price and the highest price which becomes the reference for prediction and analysis, known as the Pivot/Pivot Points, Support, and Resistance prices.
Also read: What is Forex Trendline Analysis
Pivot Point, Support, and Resistance Forex Price Movements
Pivot Point
The definition of a pivot point is One way that is widely used by traders to determine Support and Resistance on price movements.
Pivot Points are made based on the highest price (High), the lowest price (Low), and the closing price (Close) in the previous period (yesterday), to generate an estimate of the Support and Resistance levels of current price movements (today).
As is known, forex trading requires reference levels, namely Support and Resistance which are used to determine when to enter, and where to determine Stop Loss and target (Take Profit) levels.
If you pay attention, Support and Resistance levels are very important to determine the amount of risk in trading. Without the correct risk calculation, it is very likely that you will be hit by a Margin Call.
On the other hand, by determining the appropriate risk for each trade, in the long term, your trading results will tend to be profitable.
FORMULA
Pivot Level:
- Pivot = (previous day high + previous day low + previous day close) / 3
Resistance Levels:
- First Resistance (R1) = (2 x Pivot) – Previous day’s Low
- 2nd Resistance (R2) = Pivot + (Previous day’s High – Previous day’s Low)
- 3rd Resistance (R3) = Previous day’s High + 2 x (Pivot – Previous day’s Low)
Support Levels:
- First Support (S1) = (2 x Pivot) – Previous day’s high
- 2nd Support (S2) = Pivot – (Previous day High – Previous day’s Low)
- 3rd Support (S3) = Previous day’s Low – 2 x (Previous day’s High – Pivot)
Support and Resistance are critical price levels, which are levels used by market participants in making decisions. These levels are used to determine whether the price will continue or reverse.
Support
Economically it can be interpreted as a level where ‘supply’ (supply) begins to decrease and ‘demand’ (demand) increases, so the price in the market will rise at that level.
In principle, if the movement in the market succeeds in breaking the support level, then the market price will continue to fall until the next support level.
The price or support level will have levels, S1, S2, and S3 (Support 1, Support 2, and Support 3) if support level 1 can be broken then it is likely that the price will continue to the next support level.
On the other hand, if the price movement in the market cannot penetrate that level, then the price movement in the market will reverse.
Resistance
Economically it can be interpreted as a level where supply is too much and demand has started to decrease, so prices will fall at that level.
If the price in the market manages to rise and passes the Resistance 1 level, the price will continue to the next Resistance level. However, if the price is not able to pass that level then the price will reverse direction.
Such is the forex price movement that you can use as a reference in determining pivots, support, and resistance.
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