How is pivot point calculated?
Pivot Point is a technical indicator calculated as the average of the high, low and closing prices from the previous trading period. This central pivot point is used to calculate further support and resistance levels. You can see the formulas below:
Pivot Point = (Previous High + Previous Low + Previous Close) / 3
Resistance Level 1 = (2 * Pivot Point) – Previous Low
Support Level 1 = (2 * Pivot Point) – Previous High
Resistance Level 2 = (Pivot Point – Support Level 1) + Resistance Level 1
Support Level 2 = Pivot Point – (Resistance Level 1 – Support Level 1)
Resistance Level 3 = (Pivot Point – Support Level 2) + Resistance Level 2
Support Level 3 = Pivot Point – (Resistance Level 2 – Support Level 2)
In MT4 the calculation of these levels is automatic, you just need to download special indicator.
How to trade using pivot point levels?
If the prices trade above the pivot point, the sentiment is bullish, while if the pair is below the pivot point, the sentiment is bearish.
Pivot Point is also used to determine entry and exit levels. If the price is below the pivot point, downward movement is expected to continue, so take profit order levels should be placed at pivot support levels. If the price is above the pivot point, upward movement is expected to continue, so take profit order levels should be placed at pivot resistance levels.
If the market shows strong directional movement, pivot point is used as an entry level. If the market is ranging, trade on the recoil from the first support/resistance level.
Where to download Pivot Point indicator?
You can download Pivot Points Multi-timeframe indicator here. The indicator provides a choice of several timeframes to calculate pivot points. Daily and weekly pivots are most popular on Forex.
How to install:
– Download the indicator file.
– Open MT4.
– Go to File – Open Data Folder – MQL4 – Indicators.
– Copy the file that you downloaded and paste in the folder mentioned above.
– Restart MT4 and apply this indicator on any timeframe (Insert – Indicators – Custom – Pivot Points Multi-timeframe).
When customizing the indicator choose the timeframe you want to use for pivot point calculation.