Pivot point trading strategy is a potent strategy for traders in all markets from equity to commodity. So they are equally relevant for forex trading. Pivot points are calculated from the highs and lows of the previous period. The points thus obtained are plotted as resistance and support. Pivot values can be derived for various periods like monthly, weekly, daily and even hourly. Since we are talking about day trading the daily pivot value would be the most relevant. Once you have determined the pivot values they can be used as traditional support and resistance to determine the entry and exit trades. Calculating pivot values is fairly easy. 

 PP or Pivot Point is the average of the highest, lowest and the closing value. Resistance 1 (R1) is equal to the lowest value subtracted from PP multiplied by 2. Support 1 (S1) is equal to PP multiplied by 2 subtracted from the highest value. Resistance 2 is equal to Pivot pint added to Resistance1 – Support 1. Support 2 is equal to (Resistance1-Support 1) subtracted from the pivot point. These values are plotted horizontally on the chart so that they can serve as the support and resistance. The pivot point is akin to the mid point or central value of the day while the support and resistance values are plotted above and below the pivot point. 

 It is normally observed that when a particular currency breaks above the pivot point and trades up to R1 early in the day it then hovers around that level for the rest of the day. The pivot points can be used to determine the magnitude of a trend. It can also be used to indicate the entry points by using simple break out and break down entries around the pivot points. 

 For instance while using a 5 min chart of the Yen v/s USD contract, if the yen starts near the pivot vale at the beginning of the day then trades up to R1 and proceeds to below the pivot point to S1 and subsequently to S2. This gives the forex trader a lot of opportunities to make a profit on the breakdown below each support. A trader can make a good profit by following the futures contract through the pivot values in this case. 

 You can use a technical indicator to give clear buy and sell signals. The traditional support and resistance techniques around the pivot values are still used but the indicator helps to time the entry. The MACD is a good technical indicator to use in this case. When added to a 5 min chart the MACD gives clear buy and sell indications with the crossing of the fast and slow lines. If the fast line crosses above the slow it’s an indication to buy but if the fast line crosses below the slow line it’s time to sell. 

 According to seasoned traders the good trend days are ones when the trading for the day begins near the pivot point usually you can expect a big trend to unfold on these days. If the trading of a particular currency starts far away from the pivot point, there is a good possibility that it will hover around that point for the rest of the trading session. 

 If you are an individual investor using currency futures for day trading will be your best bet because of lower cost of futures. So when day trading in forex futures with the help of pivot points follow the daily trend. The best point to enter is in the unfolding trend when the currency pair is going through the pivot values. On days when the currency opens at or near the pivot point, a big trend can be expected and keep away on days when the contract open very far away from the pivot point at or beyond R2 or S2.