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 EXPERT PANEL |
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Ask the expert
Pivot points - using technical analysis to trade forex
Ross Bauer, Senior Client Advisor, MF Global
Can you use the same kinds of technical analysis indicators that you use with share or CFD trading with forex trading too? If so what are the important indicators? Someone mentioned something about a pivot point as being an important indicator - how does that work?
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Today's expert: Ross Bauer, MF Global | One of the most appealing things about technical analysis is the ability to adapt it to a variety of tradable markets. By definition, technical analysis concentrates on the study of market action in an attempt to predict future movements. As such many of these indicators will perform over a range of markets.
Your choice of technical indicators has more to do with your trading style rather than the markets you trade.
If you are a longer term trader, you may feel comfortable using a lagging indicator such as a moving average. On the other hand, if you are a shorter term trader you will perhaps have a preference for a more predictive indicator.
Pivot point analysis is one such indicator that is predictive in nature. This analysis is used to ascertain two levels of support and resistance. These levels are short term in nature and therefore new pivot points should be calculated daily.
Pivot Points are derived by calculating the numerical average of particular stockÕs high, low and closing prices. The time periods may be based on weekly, daily or even intra-day data. Traders use these support and resistance levels to calculate possible turning points for the days trading. A market that opens between these points may initially bounce off the support and recoil from the resistance levels. A break of these levels could be seen as a catalyst for a larger move.
Alternatively, a market that opens above a pivot point would be seen as having a bias for long trades whilst the market stays above this support. A break below this level could be seen as a reversal of this trend.
An advantage of this type of analysis is that these levels are known at the start of the trading day. This gives a trader potential turning points for the day ahead and adds discipline and confidence to their trading.
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