To handle the volatility and ranging behaviour of many pairs in the forex market, the trader should be prepared to enter at a point of strength or have a very wide stop.
Most day traders would probably not be prepared to have stops of 50 pips or more. Having a nice small stop would prevent excessive losses but get us knocked out by knee jerks or ‘wash and rinse’ pretty often.
Pivot points help us to cope with this. There is alot of information about the use of pivot points and how to set them up so I won’t go into them. The simple way is to look at pivot points as magnets in the charts. Due to the extensive use of pivots by institutions, much action of buying and selling therefore take place at these levels.
As a result of this activity, pivots act as good resistance and support levels. It means also when a level is finally cleared, price can move to the next level. In the meantime, everyone is contented to play pinball.
By watching the price action near to pivots, the trader can wait for the technical picture to unfold. When an irresistable setup presents itself, entry can be made with a small stop on the other side of the pivot for a low risk bet.
