One problem though, the pit traders did not have access to the support and resistace levels that were formed during the current trading session since they were in the pits filling orders. So they needed to have some sort of reference point that could serve as potential support and resistance that they could write down on one of their trading cards they had with them in the pits and they had to have these levels before today's session opened.
The solution was to use the high, low and closing prices from the previous day to use for today's trading There have been many formulas created and offered on the internet that have been called Pivot Points and we will introduce some of those in future lessons, but today we want to start with the most basic formula that is still used today so we can understand the concept of Pivot Points and how they are used. The formula for calculating the Pivot Point is to simply add these three price levels and divide by three.
So our Pivot Point for the January 27th session is 1. Traders used this main Pivot Point to determine the mood of the day in that if the market opens below the 1. Traders also looked at tests of the Pivot Point to see if it offered support or resistance. We can see that the market opened below the 1. There was resistance which may have offered day traders a good sell entry, especially when you consider the fact that the market did not move up above the Pivot Point during the entire January 27th trading day.
This is a basic look at this tool but a good place to start for today. More Pivot Points for Day Traders. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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