Apart from currency converters (used mostly by international travelers) and real time pip calculators (used by all forex traders), there is another forex calculator which has proven its worth in managing risks inherent in volatile markets such as the foreign exchange market. This is the pivot point calculator.
A pivot point calculator basically calculates where the next possible resistance and support lines will be based on the high, low, opening and closing prices of a previous session. (A previous session can be the previous month, week, day, or hour depending on the time frame you are using for your chart.) Knowing where the possible support and resistance lines will be, helps the trader to make important trading decisions relative to his open positions.
It may seem to be a simplistic forex calculator but the fact that a lot of traders use it, makes it an effective indicator. In the first place, supports and resistance lines have always been respected by technical traders since time immemorial. It is a basic approach to any trading activity. Traders would often balk at the approach of these lines however insignificant they may seem at the moment. They would either liquidate their existing positions or open up more positions at the approach or breach of these lines. By the sheer number of people using them alone, the price is likely to either stall at these points or rampage further as the price breaches these lines. As a result, these lines become very significant and almost all forex traders watch them.
Pivot points are used in much the same way as the Fibonacci levels. The resistance and support lines that come out of pivot point calculations are treated by many traders similarly as they would the Fibonacci levels. To most technical traders therefore, pivot points are an objective way of determining whether a price will break out or stall, and retrace at these levels. Used with other indicators, pivot points can be a vital addition to anyone’s trading strategy. This makes this forex calculator another vital tool in your forex trading arsenal.
Like all other forex calculators, the pivot point calculation is simple but tedious. It calculates a series of 3 resistance lines and 3 support lines based on the last trading session’s open, high, low, and closing prices. The resistance lines are identified as R1, R2, and R3 while the support lines are identified as S1, S2, and S3. The Pivot Point is first determined using this formula: Pivot Point = (High + Low + Close) divided by 3. The support and resistances are then determined as follows:
R1 = 2 times the Pivot Point less the low of the previous session.
R2 = the Pivot Point + the difference between the high and low of the previous session.
R3 = the High of the Previous session + 2 times the difference between the pivot point and the low of the previous session.
S1 = 2 times the pivot point minus the high of the previous session.
S2 = Pivot Point minus the difference between the high and the low of the previous session.
S3 = the Low minus 2 times the difference between the High and the pivot point of the previous session.
The pivot point calculator maybe simple, the calculation maybe tedious and controversial but a lot of forex traders watch them and take their cues from them. It would be wise for you to watch them too and include it among your arsenal of forex calculator.