3 Key Forex Price Volatility Metrics -Support Resistance and Pivot Points
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The thought of winning in Forex trading scares most people before they start.
I believe you are not most people.
In this straightforward guide, we’ll guide you to see the bigger picture to bolster your trading confidence.
You’ll find the guide helpful not for one asset or currency pair but for its applicability among all other forms of trading you may take on from now on.
Price Volatility — the Opportunities in Light of Risks
The volatility in price alone accounts for the most significant risk for online traders.
It is constant that no single trader can single-handedly take control off.
And in it, traders get an opportunity to reap while being aware of the risky nature of any open positions.
When markets consolidate, opportunities to buy or sell get slimmer. Anticipating breakouts also presents two-fold risks — will price hike or dive?
A winning trader balances the risks and the opportunity to protect capital for an adverse situation. Or increase it when breakouts turn favorable.
Ideally, the trader with a winner-mind-set thrives by handling the risks, not running away. Keeping away means opportunities escape your timing.
Risk-averse or risk-fearing traders keep off.
Risk tolerant traders ride in the waves with suitable survival kits.
Market Price Support and Resistance
Price support and resistance as regions with a very low likelihood of occurrence concerning a trading time frame.
Bear in mind that prices may escalate into the regions at any time in a future date. Price volatility accommodates that nature.
Let’s dig deeper into it.
Price Support Regions
A price of an asset falls to lower-lows with time until it resists further falls.
Bearish price advances face stiff resistance at critical support. Sellers find it harder to sell below resistance levels. And it gets more complicated the lower they bid.
Further falls get the counters of sudden price hikes, reversing a trend from lower lows to higher highs.
It’s also critical to bear in mind that a support region shifts concerning time. It also remains applicable with a specific time-frame.
At support, the market is already overbought.
Price Support Possibilities
According to dailyfx.com, price support prediction is attached to three prediction categories.
At any time, you can know the trend by looking at the arrow: a blue arrow slanting at 45 degrees upwards indicates an uptrend. Also, a red arrow sloping at 135 degrees indicates a downtrend.
Note: an arrow in grey at 90 degrees indicates a neutral bias for the trend.
Each support category is denoted by a prefix — Capital S and follows each with 1,2, or 3. And each indicates a lesser likelihood of occurrence in that order. For instance, S3 is least likely to occur, while S1 is most likely to occur.
Also, dailyfx.com estimates on volatility correspond to a three-bar-color-code scheme.
- Three green bars indicate a strong likelihood
- Two orange bars indicate a moderate likelihood
- One orange bar indicates a low likelihood of occurrence
Pro-Tip: While platforms do their best to offer insights into the trend direction, support, and resistance predictions, it’s the trader’s responsibility to do due diligence.
It’s best to rely on more in-depth details, especially if you have a great strategy in place.
Price Resistance Regions
The price resistance region depicts a scenario where price rejects further hikes. Bullish market trends face reversals within these regions — where bears take control.
At resistance, further price hikes are countered with sharp bids to sell by bears.
Prices keep on an uptrend, creating higher highs.
At resistance, a market is already oversold.
Price Resistance Possibilities
According to dailyfx.com, price resistance prediction is attached to three prediction categories.
Each category of resistance is denoted by a prefix — Capital S and follows each with 1,2 or 3. And each represents a lesser likelihood of occurrence in that order. i.e., R3 is least likely to occur while R1 is most likely to
Market Price Pivot Points
What is a Pivot Point?
A Pivot point is the most important price of an asset during a day’s trading session.
It’s part of technical analysis, and it includes the following:
- Previous days high
- Previous days low
- Previous days close
To calculate a PP or a pivot point, use the formula below:
Pivot Point or PP = [ Day Highest Price + Day Lowest Price + Day Closing Price] / 3
A further breakdown of pivot points shows finer breakdowns with sets of three-tier estimates for resistance and support.
If you are a day trader for any asset, pivot points help you refine part of your technical analysis before opening positions.
Ideally, you can fine-tune your trading strategy when you zoom into the price-performance courtesy of pivot points.
Pivot Point Trading Strategies
Pivot Points Breakouts Strategy
Involves establishing the direction of the trend and the corresponding support and resistance levels(Pivot Price, R1, R2, R3, S1, S2, and S3)
Place Stop losses under Resistance for Long positions. Else, place stops above support for short positions.
Also, take your profit at the next level of resistance or support as applicable.
Pivot Point Bounce Strategy
Essentially, the pivot point bounce strategy involves opening trades when prices approach the pivot points and then bounce off.
So for prices that approach a pivot point from above a pivot point, you buy or go long. Your stop loss falls below the pivot price.
Else, if prices approach the pivot point from the lower end and bounce, you sell or go short. Your stop loss is above the pivot.
Bonus Notes: Glances at Trends and Spot Prices
Online platforms make it very easy for you to access the metrics on a web page.
For instance, here, dailyfx.com shows you that gold has a mixed trend, and the spot price is $1903.56
Otherwise, the trend is either bearish for falling prices or bullish for rising prices of an asset or currency pair.
Also, pulling on the chart price for gold already shows you the day’s highest and lowest prices as the trading day advances.
Pro-Tips on Trading Support- Resistance and Pivot Points
Armed with the variables: price support, resistance, and pivot points, you have extra insights into fine-tuning your trading strategy.
The trio fits within the first boxes you need to tick before opening any position.
Plus, trading commodities like gold, which has very high volatility, helps to rethink the strategy within the lenses of price escalation limits for any applicable time-frames.
As you are aware, a winning trade is the culmination of upfront analysis is done correctly and insightful risk mitigation.
Everything done right, you should find it very insightful to consider all the three before making any commitments. Add more indicators to help sharpen your analysis towards profitable Forex trading.