Pivot points may prove useful in helping you determine market sentiment. What this means, in a nutshell, is that you may be able to tell if traders are more interested in buying or selling an instrument at this particular moment in time.
When you think about pivot points, you should think of them as a measuring stick that allows you to determine which side of the market you ought to be on. When market sentiment gets tilted strongly to one side or the other, you can adjust your trades to match up with what you see happening in the market.
If the price action of a currency pair breaks through the pivot point in an upward direction, then you are looking at a pair that may be about ready to rip higher. If it breaks through the currency pair in a downward direction, this may mean that it is ready to fall even further.
The price may gap up above or below your pivot point if there is a news event that sends it moving in one direction or the other. The point is that if it moves above or below your pivot points, this may be indicative of something serious happening in the market, and it might be time to hop on the ride in whichever direction. Market sentiment seems to indicate that the market is headed in whichever direction the currency has broken towards.
It is, unfortunately, true that the markets do not always behave as perfectly as you would like for them to. There are times when the price moves above or below your pivot point only to reverse and head in the opposite direction. This means that you might get faked out by the price movement and lose money on your trade.
It is important to not put too much faith in any one system at any time. You should use pivot points and other measurements as a starting point for your trading, but you shouldn’t try to force the market to behave how you want it to based off of those measurements alone.
The market doesn’t care what kind of trades you are holding anyway, and you may end up with egg on your face from trying too hard to get the market to react in just the ways that you want it to. Instead, try to use pivot points as a starting point and adapt your strategy as necessary as the data changes.