How to Use Pivot Points to Measure Market Sentiment

There is nothing more essential to a trader than knowing what everyone is thinking in the market. This way you know which direction the market is taking. One way to achieve that is to use pivot points indicator to estimate the current market sentiment.

This clearly means you can use pivot points to identify either the market is more bullish or bearish. All you would need to do is to keep an eye on the pivot point. You could treat it like the 50-yard line of an American football field. Depending on which side the ball is on, you can tell either buyers or sellers have the upper hand. If the bulls are stronger than the bears, prices will rise up and above through the pivot point. The market sentiment is more bullish. Its a sign that traders are bullish on the pair and you should start buying the pair.

Let's see an example of what happened when the price stayed above the pivot point.

In this example, we see that EUR/USD break up and opened above the pivot point. Then The price rose higher and higher, breaking through all the resistance levels.

Now, when the price breaks through the pivot point to the bottom, then you should start selling the currency pair like its Enron or Theranos stock. Because The price being below the pivot point would signal bearish sentiment and that sellers could have the upper hand for the trading session.

Lets take another look at a chart of GBP/USD.

In the above chart, we see that the price tested the pivot point, which detain as a resistance level. Next thing to note is, the pair keeps going lower and lower. Assuming you had taken the clue that price persist lower than the pivot point and sold the pair, then you would have made some nice profit. GBP/USD dropped almost 300 pips! Yes sure, it doesnt always work out like this.

Some times, forex traders used to think they are bearish on a pair, but only to notice that the pair has just reverses and breaks through to the top.

In the mentioned example, if you saw price breaking lower from the pivot point and sold, you would have had a sad, sad day to regret nor waiting.

After some time, during the European session, EUR/USD moved higher, slowly breaking through the pivot point. What‘s more, the pair stayed above the pivot point, showing how buyers were rocking’ away. What we are trying to highlight here is the traders volatile

The way forex traders feel about a currency can shift dramatically day to day, even session to session. This is why you will be unable to buy when the price is above the pivot point or sell when it is below it.

Rather, if you choose to use pivot point study in this way, you should combine it with other indicators to help you determine overall market sentiment. The pivot points also give you a clue about the current sentiment of the market. They provide the very crucial resistance to an uptrend and the highest support to a downtrend.