Pivot points and candlesticks

Trade setups confirmed by independent techniques or tools — or those that occur simultaneously on different time frames — naturally carry more weight than those signaled by a single input. The trade examples outlined here combine pivot points with candlestick patterns to better pinpoint forex trade opportunities.

Pivot point analysis is based on mathematical calculations used to determine future support and resistance levels. The pivot point value is derived from the high, low and closing prices of the previous price bar, and is then added to and subtracted from the previous bar’s reference points to determine support and resistance levels for future trading. The pivot point
(PP) formula is:

1. PP = (H + L + C)/3

2. First resistance level (R1) = (PP*2) - L

3. Second resistance level (R2) = PP + (H - L)

4. First support level (S1) = (PP*2) - H

5. Second support level (S2) = PP - (H - L)

There is some debate about which value should be used for the closing price in the virtually 24-hour forex market. In forex, all trades must be settled within two business days, which is established at the close of banking business at 5 p.m. ET. As a result, this is the time typically used for the closing price.