Just like good ole support and resistance, the price will test the levels repeatedly.
The more times a currency pair touches a pivot level and then reverses, the stronger the level is.
What is Pivoting?
Actually, “pivoting” simply means reaching a support or resistance level and then reversing.
If you see that a pivot level is holding, this could give you some good trading opportunities.
- When the price is nearing the upper resistance level, you could SELL the pair and place a stop just above the resistance.
- If the price is nearing a support level, you could BUY and put your stop just below the level.
See? Just like your regular support and resistance! Nothing hard about that!
Let’s take a look at an example so you can visualize this. Here’s a 15-minute chart of GBP/USD.
In the chart above, you see that the price is testing the S1 support level.
In situations where you think it will hold, what you can do is buy at the market and then put a stop-loss order past the next support level.
If you’re conservative, you can set a wide stop just below S2.
When the price reaches past S2, chances are it won’t be coming back up, as both S1 and S2 could become resistance levels.
If you’re a little more aggressive and confident that support at S1 would hold, you can set your stop just below S1.