# How to use pivot points, support and resistance in actual Forex trading

Using pivot points as the basis of a Forex trading strategy has been around for a very long time and is now slightly out of fashion. It still remains an effective strategy, easy to understand and to implement and the arithmetic involved is minimal. The pivot level is the level at which the market changes direction for the trading day. Using the high, low, and closing price of the previous day, some simple arithmetic can be used to calculate a number of points which can be important support and resistance levels. These taken together collectively called pivot points or pivot levels.

The actual formula is given below:

R 3 = High + 2 X (Pivot – Low)

R 2 = Pivot + (R1 – S1)

R 1 = 2 X Pivot – Low

Pivot Point = (High + Close + Low)/3

S 1 = 2 X Pivot – High

S 2 = Pivot – (R1 – S1)

S 3 = Low – 2 X (High – Pivot)

R= Resistance and S=Support

You can therefore calculate three resistance levels, three support levels and one pivot point.

The pivot points are popular with traders because they are leading indicators and can be used to predict the price action on the next day. Because so many traders use them, they tend to have a large influence on the actual trading. If the market opens above the pivot point, the inclination will be to trade long. On the other hand, if the market opens below the pivot point, the market will incline to trade short. The other two pivot points that are important are R 1 and S1 respectively. You will be looking for reversals or brakes on these points and trying to take advantage. By the time R 3 or S3 are reached, the market will either be heavily overbought or heavily oversold and these points should be used to square off positions.

Using pivot points, you might end up with a chart that looks like this:

The support levels are indicated by the blue lines and the resistance levels by the red lines. Because in the market has opened below the pivot point, the market will tend to go short. Your strategy using this chart might consist of entry at S1, exit at S 2 and a stop loss at the pivot point.

A more advanced technique in trading with pivot points is the use the cross of two moving indicators as a confirmation of a breakout. You can use whatever indicators you are comfortable and you can also use MACD to check that it is favoring a buy. Remember however that indicators are merely confirmation of the breakout that is indicated by the chart. Here is an example:

There is actually no such thing as easy forex but pivot points are as easy and successful a strategy as you are likely to get.