Let’s continue examining measuring market sentiment with pivot points.
Let’s take a look at a chart of GBP/USD.
In the chart above, we see that the price tested the pivot point, which held as a resistance level. Next thing you know, the pair keeps going lower and lower.
If you had taken the clue that the price remained below the pivot point and sold the pair, you would have made some nice moolah.
GBP/USD dropped almost 300 pips!
Of course, it doesn’t always work out like this.
There are times when you think that forex traders are bearish on a pair, only to see that the pair reverses and breaks through to the top!
In this example, if you saw the price breaking lower from the pivot point and sold, you would have had a sad, sad day.
Later on, during the European session, EUR/USD popped higher, eventually breaking through the pivot point.
What’s more, the pair stayed above the pivot point, showing how buyers were rocking’ away.
The lesson here?
Traders are fickle!
How forex traders feel about a currency can shift dramatically from day to day, even session to session.
This is why you cannot simply buy when the price is above the pivot point or sell when it is below it.
Instead, if you choose to use pivot point analysis in this way, you should combine it with other indicators to help you determine overall market sentiment.
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