Based on pivot points, which direction is the market likely to move? Will the market trend up or down? As mentioned, like a compass signaling direction, the key is the central pivot point.
To confirm the direction of the trend, see if today’s central pivot point is above or below the previous day’s pivot point. If it is above, today’s price action is likely to continue upward. If it is below, it is likely to proceed downward. Just like the other technical indicators discussed in this book, a pivot trend follows the rule “an object in motion tends to stay in motion.” See Figure 10.11
DealBook® 360 screen capture printed by permission. © 2008 by Global Forex Trading, Ada MI USA
Pivot Profit Zones
With the likely direction of the day’s trend now established, we need to identify likely profit targets based on our assumption of direction. At FX Bootcamp, we have two targets, one conservative, and one a little more aggressive. However, together they provide a “pivot profit zone.”
For an uptrend, pivot point theory will target a profit zone of M4-R2. The bottom of uptrend trading days is M2-CPP.For downtrends, pivot point theory will target a profit zone of M1-S2. The top of downtrend trading days is M3-CPP. For the sake of simplicity: M1-M3 or M2-M4