Topic: Pivot points
A pivot point is a point of rotation. The prices used to calculate the pivot point are the previous period's high, low and close. The pivot points are calculated by the following equations:
R2 = P + (H - L) = P + (R1 - S1)
R1 = (P x 2) - L
P = (H + L + C) / 3
S1 = (P x 2) - H
S2 = P - (H - L) = P - (R1 - S1),
where "S" represents the support levels, "R" the resistance levels and "P" the central pivot point. High, low and close are represented by the "H", "L" and "C" respectively.
The strategy rules are simple:
- buy the first and second test of the central pivot point or the support levels;
- sell the first and second test of the central pivot point or the resistance levels.
For better results I wait for a move ot 20 pips before the test or watch for overbought/oversold conditions.
A picture paints a thousand words. Look at today's USD/JPY chart and you'll see how the priced reatreted several times form various pivot points.