The most straightforward way to use pivot points to your advance is to use them as you would resistance and support levels. They can be highly useful for you to find where there are areas of support or resistance in a given currency pair. At the same time, you might find some benefit to using them in terms of how to trade in a ranging market.
If you see that a market is ranging — not in a defined trend — you may be tempted to trade in it, but you may also be afraid to do so in some respects. The fear comes in because you are worried that trading in a ranging market may mean that you get your investment down on the wrong side of the trade. It is easy to get yourself caught up in predicaments like this. If you insist on tading a ranging maket, pivot points can give you clues on the range that the price action might be bouncing between.
Trading Support And Resistance Offered by Pivot Points
If a pivot has held previously, it could present some range trading opportunities:
1. If the price is reaching the upper resistance level, you could SELL the pair and put your stop just higher than the resistance.
2. If the price is reaching a support level, you could BUY and place your stop just lower than the support level.
Check out the below chart for an example:
In the chart, you can see that price is bouncing off of various support and resistance levels.
When price hit the S1 level just before 11AM, that could have been an opportunity to take a BUY trade with a stop-loss set just BELOW the S1 line.
When price hit the R1 level at 12:30, that could have been an opportunity to take a SELL trade with a stop-loss set just ABOVE the R1 line.
In the above examples, a good take-profit zone to target would be the next corresponding levels. The Pivot line for both the SELL trade and the BUY trade would have been a good target.