Price does not move by itself. There are a wide variety of reasons that price does move, but it all starts when enough of a currency is either bought or sold and price has to readjust to market demand. One of these factors is purely psychological. Despite what the news might say, price can move simply because it hit a psychological trigger.

A pivot point is an example of a psychological trigger. A pivot point attempts to calculate the point where price will encounter either support or resistance. The calculation will generally take into effect prior price openings, closings, highs and lows.  There are several different ways to calculate pivot points. Keep in mind that despite the various ways, one does not hold truer than another. Price should be kept in mind when watching pivot points. You’ll know if it’s a valid point based on how price responds around it.

Here is a 1HR chart of GBP/USD.

I calculated the pivot point from the prior day. The calculation I used was (High + Low + Close)/3. Yesterday GBP/USD had a high of 1.5978, a low of 1.5769, and a close of 1.5880. If you add the three up and than divide by three, you’ll get the figure 1.58756. As I chart with a four decimal broker, that will round up to 1.5876.

Taking a lot at the chart posted, you can see the horizontal line was drawn on the pivot point’s pricing. For the entire day, price danced all around that very point. You can see where price fell below it and had a hard time getting above it. Later in the day, when price finally broke past it tested it once again before finally moving up and away from the pivot point.

A pivot point itself is not a trading method. However it is a useful price to develop a trading system around as it can give the trader a good understanding in which price direction is moving.

If you are unsure how to develop a trading system, do take the time to go through the Forex Trading Network’s Boot Camp where you can learn to trade forex. Not only will give a firm understanding on the basic concepts of Forex, you’ll be armed with the necessary knowledge to learn how to develop a successful trading method.

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