The presence of pivot points on Forex is a very important circumstance that a Forex speculator can use for his own purposes - for profit.
A pivot point is the price (price level), upon reaching which, the currency rate, which carries out movement in a certain trend (upward or downward), tends to one of the following possible scenarios of its further behavior:
- - slowdown of the trend, which is clearly confirmed by the data of the "candlestick" and "indicator" analysis;
- - market entry “in flat”, that is, the movement of the course in a limited, very narrow “corridor” without a pronounced vector;
- - market reversal and its movement in the opposite trend vector, which can mean both an obvious correction of the trend, and a relatively short-term “pullback” with the possibility of resuming the movement of the course along the previously existing trend to the same turning point (then there may be a repetition of a similar scenario).
More often than not, an oscillatory movement in an extremely narrow range can be considered a characteristic symptom of the exchange rate staying in close proximity to the pivot point. Such limited fluctuations in the exchange rate can usually be observed within certain price ranges, which can be identified as possible pivot points, read more about them at .
The existence of the phenomenon of turning points is due to the presence of a certain memory in the market. Suppose, in the past, some events occurred that influenced the market in such a way that it was forced to stop its movement in a specific direction, changing it to the opposite direction or going “to flat”. Subsequently, these “incidents” will be associated with the “trend” market with certain price levels that they reached at the very moment when such “incidents” took place. In other words, the market will have a kind of “psychological connection” to certain price levels, upon reaching which its “trend” movement will lose its former confidence.
Reaching a pivot point, the market seems to be faced with a choice: either once again succumb to the "complexes" of the past, or still overcome this "psychological barrier" and continue moving along the trend. As a rule, the market can “break through” the pivot point in two situations:
- - after a certain time, the pivot point ceased to have psychological power over the market, that is, it became simply irrelevant;
- - new events occurred on the market that motivated him to overcome the fear associated with a specific pivot point.
The task of the trader is to timely identify pivot points on the market in order to make adequate trading decisions. For this, a variety of methods can be used: graphical analysis (identification of zones of "price stagnation"), signals of mathematical indicators, and so on.