The forex industry is made up of countless definitions and it's easy to forget a few along the way. But because no forex education can be complete without a glossary of forex terms, we've compiled one which aims at explaining key definitions in the simplest way possible. This way, you'll never be lost or confused again!
Pivot Points are popular technical tools used by traders to identify price direction and get a feel for market sentiment. There are five calculation methods:
The Standard pivot point calculation method, also known as the Classic or Floor method, uses the previous period’s high, low and close price to calculate the current period’s direction/sentiment, as well as future support and resistance levels.
Just like the Standard method, the Fibonacci method uses the previous candlestick’s high, low and close price to determine the current period’s direction. Future support and resistance levels are estimated by employing Fibonacci ratios 0.382, 0.618 and 1.00.
Unlike all other pivot point methods, DeMark’s method uses the relationship between the previous period’s close and open prices, to determine which of the 3 formulas to use, when calculating support and resistance. The main Pivot Point is not part of the DeMark method.
Camarilla Pivot Points provide a “road map” for both range and break-out traders, looking for potential turning points in the market. The emphasis is focused on the third support and resistance levels as potential reversals. Also, the fourth support and resistance levels play a key role in accelerating markets in both upward and downward directions.
Woodie’s method is another variation of pivot points. The main pivot point represents the deciding factor of the market’s sentiment and its future direction.
The corresponding support and resistance levels provide take profit opportunities and possible turning points.
Unlike other pivot point methods, Woodie’s use the current period’s open price when calculating the main pivot point. Just like the other methods, the daily timeframe is the preferred timeframe for calculations.
Category: Technical Analysis