For those interested in foreign exchange, or Forex, trading and are just beginning, it is important to understand that Forex trading a risky but very profitable business. An important tool used by Forex market traders to analyze fluctuations in the market is the Pivot Point.
The Pivot Point is where a currency pair hits the highest point of a high trend or the lowest point of a low trend before going in the direction from which it came. This is the first place where an investor usually enters a trade because it is the basic Support and Resistance level. The largest movements in price usually occur at the Pivot Point price, too. A good way to get used to using the Pivot Point is to look back at a month of charts and find where the Pivot Points occurred and see where the best Pivot reversal points occurred. Large movements and strong momentum create huge profits. When a pivot reversal breakout day happens, it’s important to look for whether or not the market breaks a new higher high or a lower low.
Investing in Forex does not require a lot of capital investment. About $300 or less can go a long way. Some traders will use the strategy of buying at pivot low when the price moves more than 1 pip above the high of the middle candle. Then, they sell at pivot high when the price moves 1 pip below the low of the middle candle. If the price is at the Pivot Point, moving back to the Resistance 1 or Support 1 level is very probable. If the price is at the Resistance 1 level, it can be expected to move to the Resistance 2 level or back towards the Pivot Point. If the currency price is at the Support 1 level, it can be expected to move towards the Support 2 level or back to the Pivot Point. If the price is at the Support 2 level, it will either move toward the Support 3 level or back toward the Support 1 level.
Resistance level 3 and support level 3 are used by Forex market traders as an signal of the maximum number of days that have extreme volatility but may also be exceeded. Pivot Points work fantastically in sideways markets because prices typically range between the Resistance 1 level and Support 1 level.
If one were to numerically rank the best traders across the world, more than likely the numbers would consist of traders who can take $100 million or more and make at least 20% per year on that amount at a consistent rate. Probably only twenty to thirty traders exist in the world that would be able to do such a thing.
Remember two important things. First, if the market goes above a pivot high, it’s time to buy. Second, if the market drops below a pivot low, sell short. These types of trades are done with a one-day timetable in mind. Once the breakout takes place, it’s a good idea to close the position at the end of the trading day so that gains are protected.