Traders use pivot points to get in and out of a trade. Each day has an open, close, high and low that is used to create the Standard pivot point. Using this data from the previous day, traders calculate the potential points at which the trade may turn for the current day.
Standard Pivot Points
One of the most commonly used pivot points is the Standard Pivot Point. It can be used in a few ways depending upon the trader.
Daily Pivot Points – This kind of pivot point are useful for a trader when he is swing trading. If his trade is going to be restricted to just a couple of trades per day, this will be useful. The trader can determine his entry and exit point depending upon the high point, low points and closing points on the previous day.
4-Hour Pivot Points – The 4-hour pivot point is used by intraday traders. They are calculated by using the data available for the previous 4 hours. It is for traders who trade frequently and need the data to know if they have to get out or in during the next four hours. As the pivot points are more, the number of exit and entry points is more too.
Long Term Pivot Points – These pivot points give the trader an idea of where the main support levels and resistance levels must be placed. There are many traders using pivot points and each of them gets the same results. When there are so many traders getting the same support level and resistance level, then the points will hold.
Other Pivot Points
Apart from these, there are other technical pivot points such as Fibonacci pivot points, Woodie’s Pivot points, Camarilla Pivot points and prop firm Pivot points. The strategy used depends upon the trader and the pivot point with which he is comfortable. They are all at par and can be interchangeably used. Like the Standard pivot points, the factors taken into consideration are the support levels and the resistance levels.
Many traders believe that the best way to trade is in mid-trend. It is further believed that when there is a pivot point, you must wait for a new trend to start. But Forex trading is all about what works for you and what you are comfortable with. These pivot point in currency trading are just guidelines to help you pick your way through trends.
3 Bad Forex Strategies
When you begin to trade in the Forex market, you are advised to have a proper strategy recorded on paper before you begin the actual trading. There are some strategies that sound very good when put down on paper but prove to be a bad decision when you execute them. Given below are three such Forex strategies that you must shrink from, when it comes to their practical implementation:
Moving Average Crossover Strategy – This strategy is similar to the moving average strategy with a difference that there are 2 or more averages that crossover, signaling momentum change. It is not worth the time and risk because you have to be able to take many losses before you get a single win. The human psyche is such that it cannot take in a single loss with ease and too many losses is out of question.
The moving average crossover works on the basis that a moving average will cut across the other and signal a momentum change. The trouble with this is that once you enter a trade, you are unable to exit until the crossover reverses, meanwhile resulting in a number of losses.
Martingale Strategy – This is another toxic strategy that works of the belief of gradually increasing the size of your position till you get a good trade. This strategy has found popularity in Las Vegas but for an ordinary trader, who is not a gambler, the strategy is not at all sound. The assumption is that you begin with risking a small percentage say 1%, on the first trade and keep on increasing it slowly till you get a very good trade. The strategy can go both ways i.e. you can win or you can lose. If it is a loss, then it is hard to absorb.
Black Box Strategy – This form of strategy depends upon the black box or the computer to do the trading for you. It works on mathematical calculations that do not take “Black Swan Events” into account. Since it is an automated system of trading, the computer continues with the trade even when events signify that it should be closed. It has resulted in massive losses for companies in the past and in one case, The Reserve Bank of New York had to rescue the company so that there was not serious world financial crisis.
These are strategies by using which you are setting yourself up for a loss or a series of losses. Trading requires focus and constant monitoring. You can be a successful trader by resorting to shortcuts. So look for reliable strategies that will help you stay afloat.