All traders had to deal with reversal points in the Forex market. It's just that not all of them were aware of what they were dealing with. In this tutorial, we will look at what pivot points are in Forex, why they are needed, and how to determine them on the chart.

In addition, we will give an explanation of the Demark pivot points, as well as how to trade correctly on the pivot points.

What are pivot points?

With pivot points or anchor points is called a token that is used by traders when performing technical analysis in the market. This indicator shows potential resistance/support levels. This makes it possible to determine whether the market is inclined to a downward or upward trend.

Note that the classic pivot points are determined by the average price, which takes into account the extremes, as well as the closing price of an asset. The reference points are the previous day, week, and even month.

Simply put, pivot points or simply pivot points are horizontal levels of resistance and support. The reference point is not formed just like that. Its location depends on the price indicators of the previous day.

Let's see why you need pivot points. Answer: if you analyze the price behavior near them, you can determine the price at which traders enter or exit the market.

Most financial organizations, banks, as well as millions of traders around the world trade on reference points.

Pivot points are a kind of indicators for entering the market, the values of which were taken from the previous trading day. Note that the daily and weekly pivot points on Forex are more significant. Professional traders are used to using monthly reference points in their analysis. But they are not as common as daily pivots or weekly ones.

As you can see from the figure above, pivots can be called the peak values of Japanese candles, or more precisely, their ending shadows.

How do I use anchor points correctly?

Keep in mind that when using reference points in chart analysis, they can be not only a support level, but also a resistance. For example, R1 will be a strong resistance level. However, if the price punctures it, and then returns to it again, it will already turn into a support zone.

In the case where the price is below the main pivot point, then the mood of the market can be considered negative. If the opposite is true (above the reference point), then it is considered positive.

Important: when analyzing a chart with reference points, pay attention to the coincidence of levels, for example, daily and weekly. In other words, their levels coincide or are very close to the point of contact. Such reference points will be considered very strong. From them, you can consider a price reversal.

As you can see in the figure, the daily resistance is almost the same as the weekly resistance. Purchases can be considered from these levels. In order not to wait for the price to reach this value, smart traders solve this issue through pending orders.

Types of reference points

There are many reference points on Forex. However, they all " spin” around the main pivot point. All other levels are calculated based on this dominant point.

You need to remember that the reference points on Forex that are above the main level are designated R1, R2, R3. They act as resistance levels.

If the levels are below the dominant zone, they are called support points and are indicated on the chart as S1, S2, S3.

Reference points are calculated using the following indicators:

The middle reference point (PP). By the way, we called it "dominant".

Two support levels(S1), (S2).

Two resistance levels (R1), (R2).

There is also such a thing as midpoint reference points. They are located between the reference points S1 and S2, and are indicated on the price chart somewhat differently: M1, M2, etc.

How are pivot points calculated on Forex?

The reference points are calculated not for the current price, but for the past period. For example, the closing price of the previous day.

The main reference point can be calculated using the formula: (closing price + (minimum and maximum price))/3.

Resistance (R1) is calculated: (reference point x 2 – - minimum price.

Resistance (R2) can be defined as: (maximum price - minimum price) + reference point.

Support (S1): (reference point x 2 – - minimum price.

Support (S2): reference point – (maximum price – minimum price).

The median reference points can be calculated using the following formulas:

(S2+S1)/2 = M1;

(S1+PP)/2 = M2;

(R1+PP)/2 = M3;

(R2+R1)/2 = M4.

But do not be afraid that you will have to determine the reference points yourself using these formulas. Traders optimized everything a long time ago, came up with many indicators and programs that will calculate the location of reference points themselves.

Don't know how to determine the trend reversal point based on monthly and weekly reference points? To determine the weekly reference points, you need to take the opening prices of the Sunday night session, as well as the closing prices of the end of the week – Friday.

It is also easy to determine the monthly pivot points on Forex. This is the opening price for the first and last days of the month.

Demark pivot points

The price reversal points for the Demark indicator are considered to be the levels of 0.3 and 0.7. In other words, these are a kind of oversold and overbought areas.

Reference points are calculated using the following indicators:

The middle reference point (PP). By the way, we called it "dominant".

Two support levels(S1), (S2).

Two resistance levels (R1), (R2).

There is also such a thing as midpoint reference points. They are located between the reference points S1 and S2, and are indicated on the price chart somewhat differently: M1, M2, etc.

How are pivot points calculated on Forex?

The reference points are calculated not for the current price, but for the past period. For example, the closing price of the previous day.

The main reference point can be calculated using the formula: (closing price + (minimum and maximum price))/3.

Resistance (R1) is calculated: (reference point x 2 – - minimum price.

Resistance (R2) can be defined as: (maximum price - minimum price) + reference point.

Support (S1): (reference point x 2 – - minimum price.

Support (S2): reference point – (maximum price – minimum price).

The median reference points can be calculated using the following formulas:

(S2+S1)/2 = M1;

(S1+PP)/2 = M2;

(R1+PP)/2 = M3;

(R2+R1)/2 = M4.

But do not be afraid that you will have to determine the reference points yourself using these formulas. Traders optimized everything a long time ago, came up with many indicators and programs that will calculate the location of reference points themselves.

Don't know how to determine the trend reversal point based on monthly and weekly reference points? To determine the weekly reference points, you need to take the opening prices of the Sunday night session, as well as the closing prices of the end of the week – Friday.

It is also easy to determine the monthly pivot points on Forex. This is the opening price for the first and last days of the month.

Demark pivot points

The price reversal points for the Demark indicator are considered to be the levels of 0.3 and 0.7. In other words, these are a kind of oversold and overbought areas.

As you can see, these are the same support and resistance levels. The principle of trading on these points is known. When the market is overbought, sell. And when oversold, buy. Trading on pivot points can be useful not only for the Forex market, but also for binary options. After all, there are more than one hundred trading systems based on pivot points. In other words, we know where a strong reversal level is located at what price, wait for the price to reach it, and make a deal to rebound from it.

Conclusion

Above, we considered not only the Demark pivot points, but also the reference points. We learned that they come in different types. They also talked about how they are marked on the price chart and in books about Forex.

In addition, they showed how and by what formulas reference points of different types are calculated. Most traders consider reference points not only as resistance or support levels, but also take them into account when analyzing the market. There are many trading strategies based on pivot points. Therefore, choose such a vehicle for yourself, test it on a demo account, and only then start trading on real money. You can filter out false signals for entering the market by determining the trend in the older time interval. Trade in the direction of the trend and you will be happy!

## Comments (0)

## Write comment