Pivot Points

Pivot Points are an indicator derived by calculating the numerical average of the high, low and closing prices of a commodity. These points can be used as a predictive indicator: if the following day's price falls below the pivot point, it may be used as a new resistance level. Off course, the opposite is also true.

An explication of how they are calculated can be found on WikiPedia.org.

Most modern charting applications support calculating pivot points for you, and in addition there are several sites that calculate them for you and post them online, like mypivots.com.

Some things to take into consideration:

• For markets that are open 24 hours (like Forex) there is no real open & close time. For these markets, the pivots that are taken into account the most are the ones calculated from 5 PM to 5 PM EST.
• Don't forget to also take weekly & monthly pivots into account.
• After days with a lot of movement, the Pivot Point and its related support/resistance can be far apart. In these cases it is a good idea to also take the mid-lines into account (the middle between a pivot and it's support). In some extreme cases, even quarter-pivots can be useful.
• If price is above the pivot but fails to take out the 1st resistance, there is a good chance that it will fall to test at least the 1st support.

The hourly chart of the EUR below gives a nice view on how price reacts around the daily pivots.