Having looked at how the forex markets can be broken up into the fx forex trading hours, now let’s take a look at one of the most popular forex strategies to use based on our market analysis. The technique involves using pivot points, which were originally developed by the commodity traders on the floor of the Chicago Mercantile Exchange, and are an attempt to identify potential support and resistance levels within the trading period, where market sentiment changes from bullish to bearish or visa versa. As we have already seen the forex markets trade around the clock, 24 hours a day, with changing sentiment, liquidity, market volumes and market players making technical analysis extremely difficult, and rendering many of the more popular technical indicators and tools redundant. In order to overcome these problems we use the four hour ‘synthetic’ trading session, coupled with ‘rolling’ pivot points, which provide an ongoing analysis of the market as it moves from one trading session to another. So let’s see how rolling pivot points work in practice, and as you will see they are extremely easy to calculate and implement.

Forex indicators – rolling pivot points

The underlying philosophy of pivot points is very simple to understand, and is based on the premise that if investors and speculators are prepared to pay more today than they were yesterday, then the market sentiment is bullish. Similarly, if these same market players are only willing to pay less for something today, than yesterday, then the market sentiment must be bearish. In our case, we use the four hour fx forex charts to calculate our pivot points which we do manually, as it is quick and easy, and within the 24 hour period we only need to do this six times in order to arrive at our pivot points around the clock.  Our pivot points are calculated using the following simple formula:

  • PIVOT POINT = ( HIGH +LOW +CLOSE)/3

So to calculate the pivot point, we simply take the high, low and close of the previous 4 hour candle, calculate the pivot point, and then apply this to our fx trading charts, for whichever timescale we are trading. Over the next four hour period if the market is below our pivot point then we trade to the short side, and if it is above the pivot point, then we trade to the long side. At the close of the next four hour period, we recalculate the subsequent rolling pivot point, and trade the next session accordingly.

Although a very simple trading strategy it is one that is extremely powerful when integrated with other analytical tools, and provided you do not try to pick turning points and trade on the break of the pivot, then it offers a simple and elegant solution to trading the fx forex markets, using a technical approach. Naturally the choice of your trading timescale can be chosen to suit your style of trading, so if your strategy if forex scalping then this provides the ideal indicator to provide a guide to the short term direction for your trades.