Trading in forex is a risky business. In fact, 90% of the traders in forex suffer losses each day. The reasons can be traced to bad decision-making, terrible luck, or the lack of training and knowledge of the forex market. However, each day sees more and more people investing in currencies with the dream of making it big. Trading here is not so simple. It requires complete knowledge of where to invest the money and, more importantly, when to invest it and when to take it back. Such entry and exit points can be found by using ‘Pivot Points’.
A trader can use such pivot points to figure out when to enter a particular trade and when to exit it to attain maximum profits out of that trade. Recognizing such points is not so easy and often requires a lot of practice.
Pivot levels can be calculated by using indicators like the MACD, CCI, or RSI. All these indicators are freely available online. These indicators work by reading old market trends and support resistance levels of currencies.
Support resistance levels are often used to determine forex pivot points. Here support levels are the places where the price of the currency is expected to rise, while resistance levels are used to mark the places where supply surpasses the demand of that currency. Once a resistance level is broken, the bid/ask price of the currency tends to surge upwards. Based on this, pivot points can be used to predict entry and exit points in a trade.
Another important factor to consider is stop-loss. This is a value below the initial buying price of any security that is pre-determined. If a market falls, then the securities are automatically sold on reaching the stop-loss limit. Its value depends directly on the risk-taking capability of the trader.
If the prices break above the pivot levels in a market uptrend, it is advisable to enter the market with a Long position and stop-loss below the pivot level.
Similarly, if pivot levels repel the prices in a market downtrend, it is advisable to enter the market with a Short position and stop-loss above the pivot level.
With prices above the pivot level in Long trade, it is advised to aim for a profit of only 10-15 pips below the next higher pivot level.
Similarly, in a short trade with prices repelled by the pivot level, it is advised to exit once the prices reach half the pivot length.
These are only tips for effective trading using pivot points to determine entry and exit in forex. However, it is important to remember that they do not always guarantee success.