by Giselle Sanchez
Forex pivot point trading is based on two main tendencies which occur in the market.

If a day's price action begins above the pivot point, prices will tend to stay above that point until it reaches a resistance point. Conversely, if a day's pricing action begins below the pivot point, the price will tend to stay below that point until it reaches a support point. A resistance level is a price that tends to prevent further upward movement. A support price is a price action point that tends to prevent further downward movement.

When it comes to day trading, we can say that pricing moves universally lead to opposite - though not equal - pricing reversals and this is one of the biggest reasons why the pivot point trading system works. It focuses on human nature and the primary motivation for trading - profitability and profit taking.

All you has to do is take a look at hourly pricing moves on those days when no or inconsequential economic reports are due for the countries involved. If profit taking isn't driving the 10-30 pip roller coaster, what is?

Trends in currency pricing therefore, like all markets, are cyclical. Professional forex traders and many successful speculators rely heavily on the market's tendency to "bounce" between calculated support and resistance points that manifest themselves either on a weekly, daily or sometimes even hourly basis.

Pivot point trading strategies work well in markets with a wide daily trading range, such as the Forex. It is important to identify therefore those "high activity" areas in which price has a high probability of reversal. These areas are important trading zones watched daily by floor traders and computer trading systems.

This pivot point trading system shows you how to identify and execute trades profitably within these zones.

To summerize it very simply, when price approaches a pivot above, a trader waits for a reversal at that point and sells. The opposite is true when price action is moving downward. You wait for a bounce off the pivot of support and then place an order to buy.

If the market opens or later trades at the extremes R2 or S2 (support or resistance), pricing will exhibit a tendency to trade back toward the pivot point. Hence, you try to avoid buying high (at R2) or selling at the low (S2). The wisdom of this is even greater the further the price moves away from the day's pivot point.

This pivot point program provides not only Pivot, R1, R2, S1, and S2, but also the M1, M2, M3, and M4 points as well. It is common to find many traders calculating only the Pivot, R1, R2, S1, and S2 levels. In the Forex market, however, you will find these additional points of support and resistance to be very significant indeed.

These pivot data points are published daily and is available for access here. You are shown also how to calculate the pivot points using a proprietary Pivot Calculator with live data feed.

After you have calculated the pivot numbers for the day, place horizontal lines on your 15 minute and 1 hour charts at the pivot numbers for the day, or at least as many lines as your chart has room for. These pivot points will guide your trading throughout the day - it is a very sound and profitable trading strategy.

Take a look below at a example of 6 trading opportunities during a 12 hour period that ran through the Asian and London trading sessions. If you examine the chart closely, you'll see that the previously calculated support and resistance points were on this day were highly predictive and how they would have allowed you to build in advance a successful trading plan.

The first step is to obtain pivot values from end of day data - you do this with a pivot point calculator. Secondly, apply horizontal lines to your charts. Wait for price to either bounce off or break through the pivot.

In the above sample there were 7 points of entry and exit. The total profit potential for this one day was 183 pips. In less than 12 hours. This type of response to pivots is not uncommon. Price action around pivot points is powerful and occurs every day.

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