Pivot point trading is an effective method for defining reversal, resistance and support levels of the Forex market. Many traders use pivot points to predict daily market price movements.
The Pivot point strategy includes seven technical levels: 3 resistance levels, 3 support levels and the actual pivot point level. The 3 most important pivot points are Resistance 1, Support 1 and the actual pivot point. This is what the strategy postulates: if the market is trading above the pivot point, then the bias for the day is bullish. If the market opens below the pivot point then the bias for the day is bearish. By the time the market reaches Resistance 2, Resistance 3 or Support 2, Support 3, the market will already be overbought or oversold and these levels should be used for exits rather than entries.
There are 4 methods for computing pivot point levels: Pivot, Woddie, Fibonacci and Camarilla. The Pivot method is a
standard one. Woddie, Fibonacci and Camarilla are alternative methods.