Wouldn’t it be nice if there was something concrete about trading on the forex market? Imagine, there was a signal that never failed you. When it indicated that it was time to enter a trade,, you would just click a few buttons and voila, you have a profit. Such signals do exist, but only in retrospect. Still, if you know how to spot these signals early enough, you can join a trend within a currency’s price and make a profit off the tail end of the trend.
Called pivot points, these objective indicators can be placed upon a currency’s price chart and allow you to spot trends shortly after they begin. Although this is not the magic silver bullet as discussed in the opening, they are often used by traders to hop on a trend before it ends. If you are a range bound trader, you use these pivot points as buy or sell points since the price is about to correct itself. For example, if the pivot point occurs at the top of a range, the price is probably about to drop, thus indicating a selling or short position.
Breakout traders use pivot points as an indication that a range has been surpassed. So if a pivot point occurs at the top of a chart, the pivot point is then an indicator that the range has been broken and that a new trend is officially underway.
These two styles might sound contradictory, and in a way they are. Still, a firm grasp on the fundamentals of the currency in question will usually allow you to see which one of the above variations is occurring.
