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Support/resistance levels and pivot points are two essential technical indicators when trading in the forex market.
Let’s find out more about support/resistance levels and Pivot Points.
Support/resistant levels
The concepts of support and resistance are two of the most discussed attributes for technical analysis. They are part of analyzing chart patterns, and traders use these terms to talk about price levels on charts that usually act as barriers.
Pivot point
Pivot points are also a technical analysis indicator or a set of calculations used to find the overall trend of a market within a specific timeframe. The pivot point itself is simply the average of the high and low within a day and the closing price from the previous day.
What are support and resistance levels?
Support is a price level where a downtrend is expected to pause due to a concentration of demand or buying of interest. As the price of the assets or securities drops, the need for the share increases.
It is inversely proportional. It forms a support line, and in the same way, the resistance zones arise because of the selling of interests when the prices increase.
The timing of some trades is believed to be because support and resistance zones will not be broken. So in a scenario where the price is halted by the support and resistance levels, or it can break through, traders can place bets in the direction and determine if they are right.
How to use support and resistance levels?
The most experienced traders can see when and how particular price levels fall and how certain price levels tend to prevent traders from pushing the price of an asset in a specific direction. Support refers to the prices on the chart that tend to act as a floor by preventing the cost of an asset from being pushed downward movement.
If the price moves in the wrong direction, the position will be closed but slightly lost. Contrary to this, if the price moves in the right direction, the move, however, will be substantial.
What is the pivot point?
The pivot point is the basis for any technical analysis indicator. It also includes other resistance levels and support levels that are all based on the pivot point calculation. All these levels help the traders to see where a price could experience support or resistance.
The pivot point indicator can be added to the chart, and it will show the levels automatically.
How to use pivot points?
Here is a hypothetical scenario. If we look at the trade positions on Wednesday morning, we will use the high and the close from Wednesday morning. It will create the pivot points for the Wednesday trading day.
Pivot points are an intraday indicator used to trade futures, commodities, and stocks. Unlike moving averages and oscillators, they remain at the same price the entire day.
Bottom line
Every trader must hone in on support/resistance and pivot points if they want to get a head start. You can also combine these tools with other technical indicators like the RSI or Stochastics.
Content sources: https://www.youtube.com/watch?v=V5J7LndOng0 , https://www.fxcc.com/supportresistance-levels-and-pivot-points-lesson-3 , https://en.wikipedia.org/wiki/Pivot_point_(technical_analysis)
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