Do pivot points work in forex? - Pivot Point Trading

There is no simple answear to that question. In short:

Yes, Pivot Points can work in forex if you have an idea how to work with them.

You have to understand that Pivot Points is not a stand alone indicator. It gives you middle line (pivot) and potential resistance (R1, R2…) and support (S1, S2….) levels. That’s it. You have to work with that information.

So what can you do to use Pivot Points in the best possible way?

Few tips:

1. Situation on higher time frames matters

Pivot Points give you potential support and resistance levels but it doesn’t meant that these are only levels that prive will respect.

You have to check where are possible support, resistance zones based on higher time frames. You also check price action, trend lines and all important things that can impact price movement. If you see that there is a confluence of Pivot Points and levels from higher time frames then you have your potential areas of interest.

2 Different Pivot Points in different situations

When new traders start using Pivot Points they stick mostly to daily Pivot Points. That’s normal but you have to be aware that there are other Pivot Points based on specific time frames:

1-hour Pivot Points (it’s mostly use by robots)
4-hour Pivot Points
daily Pivot Points
weekly Pivot Points
monthly Pivot Points
yearly Pivot Points

Ok, that’s a lot. Which should you use? The ones that are near your time frame. Lets say you day trade on 5 minute time frame. In that case you will pay most attention to 4-hour Pivot Points and daily Pivot Points.

If you are swing trading mostly on 1-hour and 4-hour time frame then you want to pay attention to daily Pivot Points, weekly Pivot Points and monthly Pivot Points.

It’s easy to understand when you check different time frames and Pivot Points. You simply have to be aware that there are also other Pivot Points than daily Pivot Points.

Example of monthly Pivot Points:

3. You need a system with entry, exit points and risk management

Again, you don’t sell at R2 and buy at S1 simply because price’ve reached these levels.

This is only an information that something might happened in that area. Mayby trend is so strong that price will go through R2 level with only small correction. Or maybe that will be a start of bigger reversal move.

You have to have a system that will help you to enter and exit trades.

Pivot Points indicator is not a system. It’s like Google Maps but you decide when to make a turn.

Things that work pretty well combined with Pivot Points:

price action, price action based on higher time frames
price patterns
supply, demand zones, especially ones based on higher time frames
divergence based on RSI, MACD
trend lines break

4. You still need a proper risk management

That one is obvious but I have to repeat it all the time. What’s nice about Pivot Points is that they give you rather clear areas where you can place your stop loss, take profit target and so on.

5. Pivot Points and Forex

Forex is a very liquid market, especially when we talk about major Forex pairs. Thanks to that automated trading is a big part of a pie (more than 50%). It’s easy to understand why. 24 hour market, good liqudity. There are good algos that you can’t simply use in penny stock trading because conditions do not allow to do so.

And if you look closer you’ll see that algos like Fibonacci and Pivot Points. We are talking about scalping, day trading, swing trading… Switch to 1 minute time frame and see how price reacts with 1 hour Pivot Points. Now switch time frame to 5 minute but still hold on to 1 hour Pivot Points. It’s obvious that algos use these levels.

To sum it up

From my experience, yes. Pivot Points work in Forex. The problem is not the market (Forex, stocks) but how you use Pivot Points in your trading – do you have a strategy, do you manage risk etc.