If youre going to trade, you need to understand support and resistance (S/R) also known as pivot points. Commercial traders recognize this. And, as you might already know, commercial traders dominate the Forex.

Why?

Because commercial traders have at their disposal the kind (i.e., amount) of money capable of moving this market. So, whats important for you to know is they heavily rely on support and resistance levels.

S/R levels, as explained here, are called pivot points (which is an accurate name, because price tends to pivot up or down, long or short when it reaches them). They are typically calculated using a mathematical formula that relies on a currency pairs previous day's high, low and close values (HLC).

Okay, besides the commercial traders using Pivot Points, why else should you want to include these in your trading arsenal?

Let's look at why

When an novice trader looks at a price chart, it appears that prices randomly go up and down. But, if that same trader plotted pivot points on the same price chart, he or she would immediately notice that price movement is NOT random in fact, theyd see theres a method to the madness, and heres why:

If you understand trading is based on fear and greed (i.e., its emotional), youll see when price reaches a S/R level, traders tend to collectively enter or exit positions, which can catapult the market in the opposite direction or cause it to rest at that point for a period of time before it then makes its next move.

Theres been a lot of research on commercial pivot points. So, its no surprise theres some disagreement on the subject, including the formulas used to calculate the pivot points. The same goes for the times used to calculate the open, high, low and close (because the Forex is open 24/7, traders use a variety of times in their calculations).

Based on this variance of formulas and times, non-commercial traders can generate pivot points that dont mesh with the commercial traders. On the flipside, you can be pretty sure the commercial traders are all tuned-in to the same radio station meaning theyre all using the same input values.

I use the pivot point values as provided on the Open FX Yahoo group. This is a great free chat group that has a collective group of highly successful Forex traders, http://finance.groups.yahoo.com/group/OpenFX. Sign up now and then click on the Files link and then the Pivot Updates to get access to these amazing Pivot Points that are updated on a weekly basis. This free resource alone is worth hundreds of dollars.