Pivot points are really useful for day traders in particular because they are used by lots of traders, and therefore the lines of support and resistance often act as strong turning points and natural exit points. However it should be pointed out that there are a few different types of pivot points you can use, which do give slightly different levels.

I have to admit that I'm guilty of using the default settings ((H + L + C) / 3) for the pivot points on the IG Index charts when trading early morning forex breakouts, but thanks to a recent post by Trevor, a regular contributor to this blog, I have started using different settings that seem to offer slightly better results for this system.

I am now starting to use the (H + L + C + today's O) / 4 settings instead, as recommended by Trevor, because the price of the GBP/USD pair seems to react more around these particular pivot points. (H = High, L = Low, C = Close and O = Open).

The other main pivot point settings you can use are (H + L + today's O) / 3. To be honest there is very little to choose between them because you will find that the R1, R2, S1, S2 levels are all in roughly the same areas, but they can make a big difference if you are day trading because they could be the difference between making a profit and making a loss.

Trevor provided a very useful comment earlier today about the pivot point levels based on his own research. I hope he doesn't mind me repeating this information in a separate blog post, but he found that for trading between the various pivot levels, ie R3, R2, R1, pivot, S1, S2, S3, etc, the following pivot point settings are the best ones to use for the various currency pairs:

AUD/JPY - (H + L + C) / 3
AUD/USD - (H + L + C + today's O) / 4
EUR/AUD - (H + L + C) / 3
EUR/CHF - (H + L + C) / 3
GBP/AUD - (H + L + C + today's O) / 4
GBP/CHF - (H + L + C + today's O) / 4
GBP/JPY - (H + L + C) / 3
GBP/USD - (H + L + C + today's O) / 4
NZD/USD - (H + L + C + today's O) / 4
USD/CAD - (H + L + C) / 3
USD/CHF - (H + L + C) / 3
USD/JPY - (H + L + C) / 3

Of course you should always do your own research to find which settings work best for you, and are best suited to your own particular trading system.

However the point is that it is worth trying out different settings because unfortunately there is not a universal setting that all traders use, and you may therefore find that certain pivot point settings give you better results than others.