Another Pivot Point Trade in Addition to Two Non-traditional Ones (33 ITM)

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Forex Multi Time Frame Pivot Points Trading and Investment Strategy

This easy strategy based on two indicators: RSX and Pivots. I love both very much. Actually i am not a developer of this one, i just had realize: This system perfect fits my style of trading.

This strategy is based on Pivots + RSX + Stochastic on M15 & M30 – Intraday rangebound. Phanti is a real good trader in my opinion and i learned a lot from him…Keep it up Bro

Id like his origin idea very much, before he switched to trading with supply and demand areas. S/D areas are very powerful in forex and trading with that ones could be very successful, but i wanna make something different.

So i am gonna trade in m15 Timeframe . I am not a patient one, so trading in higher timeframes is a lil bit torture for me I now the pros would say now: “If you don’t have any patience u wont earn any cash in this business in the long run…” But seriously, i cant wait for 4 or 24 hours to candle close…

Maybe i can be very successful with that one and reach my personal target: Make trading for a living or i will completely fail and burn my account in a few days, who know.

So lets go to the facts, we need two constellations:

  1. RSX in oversold/overbought area
  2. Pair bounced of the Pivot
  • Wait for candle close
  • R:R ratio of 1:2
  • Please follow your moneymanagement
  • Don`t trade on News-Events
  • Please set a stoploss

“…There’s many ways to make money in this business & we all have our preferred methods. If what you do works for you, great! Keep doing it but also keep learning.”

    RSX: Len 14, Overbought Area > 80/ Oversold Area ABOUT of ‘Forex Pivot Points’

A set of indicators developed by floor traders in the commodities markets to determine potential turning points, also known as “pivots“. Forex pivot points are calculated to determine levels in which the sentiment of the market could change from “bullish” to “bearish.” Currency traders see pivot points as markers of support and resistance.

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Forex pivot points are calculated as the average of the high, low and close from the previous trading session: Forex Pivot Point = (High + Low + Close) / 3

Because pivot points are thought to work well in very liquid markets, the spot forex market may be the perfect place to use them.

Day traders use the calculated pivot points to determine levels of entry, stops and profit taking by trying to determine where the majority of other traders may be doing the same.

Forex pivot point calculators are available free of charge across the internet through retail forex brokers and third-party websites.

The main Pivot Level is the most important level [( Yesterday High + Yesterday Close + Yesterday Low )/3] . In a trading day, if price opens under this level, it means it has a stronger tendency to go down and Bears are stronger. So we can take a short (sell) position. If the price opens above the Pivot Level, it means Bulls are stronger and we can take a long (buy) position. All other levels may work as support and resistance and so we have to be careful when price reaches them.

For me, the Pivot Levels will be considered as the potential support/resistance levels , and I will not take any position just because the price is opened below or above the main Pivot Level.

I use my technical analysis, find patterns and pennants and will have an eye on the Pivot Levels to close my trades on time before I lose my profit. I consider this rule that if price is opened above the main Pivot Level, it may go up and visa versa. Then I wait for a breakout and will take the proper position.

For example, I would consider that price was opened above the Pivot Level and it had a stronger tendency to go up. Then I would wait for the price to break above the wedge and then I would go long. Then I would have an eye on it and as soon as it showed some reactions to the R1 level, I would fix my profit. So Pivot Points are just some help. They don’t generate buy/sell signals .

Use Pivot Point in conjunction with other technical indicators to maximize trading success

Traders should use the Pivot Point in conjunction with other technical indicators to maximize their odds of success.

Shabbir Kayyumi

A pivot point is a technical analysis indicator, or calculations, used to determine the overall trend of the market over different time frames. The pivot point also includes other support and resistance levels that are projected based on the pivot point calculation.

What is a ‘Pivot Point’?

Figure .1.Illustration of Pivot Points

Construction of Pivot Points

‘Nifty can fall towards crucial support of 7,800-7,700’

Story in a chart: ‘Cup and Handle’ pattern in Coal India suggests buying opportunity

Story in a charts: Cup & Handle pattern suggests buying opportunity in India Cements

Figure .2.Construction of Pivot Points

Working of Pivot Point

Pivot Points are predictive or leading indicators. Following are seven basic pivot levels on the chart:

1. Pivot Level (PP) – This is the middle and basic pivot point on the chart, important level.
2. Resistance 1 (R1) – This is the first pivot level above the basic pivot level, first resistance.
3. Resistance 2 (R2) – This is the second pivot level above the basic pivot point, and above R1; acts as break out point.
4. Resistance 3 (R3) – This is the third pivot level above the basic pivot point, and above R2 which is used as extended range.
5. Support 1 (S1) – This is the first pivot level below the basic pivot point; acts a strong support.
6. Support 2 (S2) – This is the second pivot level below the basic pivot point and below S1; acts as break down point.

7. Support 3 (S3) – This is the third pivot level below the basic pivot, and placed below S2 which is used as extended range.

On the chart Pivot levels are shown as parallel horizontal lines on the chart.

Types of Pivot Point

Based on underlying formula there are several pivot point systems attached below; however the most popular is standard or traditional Pivot Point formula.

> Traditional Pivot Point
> Fibonacci Pivot Point
> Woodie Pivot Point
> Classic Pivot Point
> Demark Pivot Point
> Camarilla Pivot Point

Figure .3. Traditional Pivot Points

Feature & Importance of Pivot Point

Pivot point is an important value for trading purpose whereas and the most important features are mentioned here.

> The simplest way to use pivot point levels are as regular support and resistance levels.
> Pivot Points for shorter time frame like 1-, 5-minute charts use the prior day’s high, low and close. In other words, Pivot Points for today’s intraday charts would be based on yesterday’s high, low and close. Once Pivot Points are set, they do not change throughout the day.
> The more times a stock touches a pivot level then reverses, the stronger the level is.
> When the price of a stock is trading above the pivot point it indicates the day is bullish or positive.
> When the price of a financial instrument is trading below the pivot point it indicates the day is bearish or negative.
> Support one / two (s1/s2) and resistance one / two (r1/r2) may cause reversals, but they may also be used to confirm the trend. For example, if the price is falling and moves below S1, it helps confirm the downtrend and indicate a possible continuation to S2.

> Pivot Point is typical mathematical tool and can be used without charts as well.

Trading Technique:

Trading using Pivot point (S1, P, R1)

Some key points to note while trading with pivot points.
> The key is to watch price action closely when these levels come into play.
> If price is nearing the upper resistance level, you could SELL the pair and place a stop just above the resistance.
> If price is nearing a support level, you could BUY and put your stop just below the level.

> Prices decisively trading above (S2) or (R2) pivots can give extended breakouts too.

Intraday trading using Pivot Point & EMA

Buying with PP
1. Price should be trading above EMA (5, PP) of pivot point (H+L+C/3).
2. Prices should be trading near pivot point (PP) or R1.
3. Stochastic oscillator should be trading below 30.
4. If price is nearing a buying level, you could BUY and put your stop just below the level, it gives better risk reward.
5. Book profit near next upside resistance point.

Figure .5. Pivot Point Buy & Sell Signals

Selling with PP
1. Price should be trading below EMA (5, PP) of pivot point (H+L+C/3).
2. Prices should be trading near pivot point (PP) or S1.
3. Stochastic oscillator should be trading above 68.
4. If price is nearing a selling level, you could SELL and put your stop just above the level, it gives better risk reward.

5. Book profit near next downside support point.

Traders should use the Pivot Point in conjunction with other technical indicators to maximize their odds of success.

The author is Head – Technical & Derivative Research at Narnolia Financial Advisors Ltd.

Disclosure: Narnolia Financial Advisors Ltd. does/do not have any holding in the stocks discussed but these stocks may have been recommended to clients in the past. Clients of Narnolia Financial Advisors Ltd. may be holding aforesaid stocks.

Active Trading Tips: How to Use Pivot Points to Trade

Pivot points have been mentioned in some of our earlier blog posts, but in this article, we want to add some meat to the bones by explaining to traders and readers of this blog what pivot points really are and how they can be utilized.
Pivot points can be described as indicators which are essentially based on price action, and which help a trader find “key price levels” in the market at which the price of an asset has the potential to either reverse fully, or consolidate before experiencing a breakout. These key price levels can then be used as areas where there trade entries and exits can be performed with a reasonable amount of success.

What Is A Pivot Point?
A pivot point is essentially a key price level of support or resistance. There are usually several pivot points, and they are calculated using the high, low, and close prices of a given time frame. The commonest form of pivot points are those calculated with the previous day’s values. After calculation, the trader is given 7 key price levels which constitute the price pivots. The seven key price levels are as follows:

  • Three areas of support: S1, S2, S3
  • Three areas of resistance: R1, R2 and R3.
  • A neutral price level which could function as a support or resistance: the central pivot or daily pivot.

We could also have weekly and monthly pivots, but these are only useful for long term traders.
Previously, the only way to calculate these pivot points was to keep calculating these key price levels manually every new trading day using the previous day’s high, low and close prices. This was very cumbersome and it was not unusual to see many traders get tired of the dreariness of constant calculations of these pivot points. I personally got very tired of calculating these pivot points day in day out. However, things have changed. There are now software that have been programmed with a special algorithm that enables them take the previous day’s high, low and close prices and calculate fresh pivot points for every new day, and plot them on the forex charts automatically, thus eliminating the need for manual calculations. These software are known as automatic pivot point calculators. There are several free versions all over the internet and a scan of the search engines will reveal at least one suitable one that the trader can use.

How to Derive Pivot Points and Attach Them to Your Charts

The calculation of the pivot points is based on the high, low, and closing prices of the previous day’s price action. The formula is as follows:

P= (H+L+C)/3= pivot point

Nowadays, the formula is simply used to give traders theoretical knowledge of how to manually calculate pivot point levels. These days, it saves time and effort by simply using the automatic pivot point calculators. On the MT4 platform, the automatic pivot point calculator has to be placed in the custom indicator folder after download, then attached to the chart to be analyzed. The pivot points will then appear as dotted lines with different colors. Usually the support lines are shown in green and the resistance lines shown in red. When these pivot points are plotted on the chart, the colored lines provide for immediate visual recognition of these levels of support and resistance. These levels tend to hold in the market because they are watched and respected by the millions of forex traders on the retail and institutional side of trades. They can therefore be used as a strong basis for setting trade entries and exit points.

Pivot Point Trading Strategy

Why are pivot points important in forex trading, especially for intraday traders? Pivot points are an indication of the market bias for the day.

Once the day’s market bias has been identified and some sort of short term trend has been established along this line, the movement of the price is likely to be halted at the next pivot level, or the price may temporarily take a breather as it tests that key price level repeatedly. If the bias for the market is strong enough, that key level will eventually be broken. Traders can thus use the next key level in the line of the trend as an area where profit targets for the trade can be set, and then use the key price level opposite to this line of movement as an area to define the stop loss level.

In an uptrend therefore, it is possible for the stop loss and profit targets to be set as follows depending on where the price has taken off from. If entry was made at S2 in a market with bullish bias, then the next key level is at S1 (acting as resistance). Profit target can be set there. If the price breaks through S1, then the next target is the central pivot. If the price breaks through that level as well, then next target is at R1. In all these instances, since entry was made at S2, the stop loss must be set below S2 so that even if price retreats against the trade position, the S2 support can shield it away from the stop loss. This is the principle used in setting stops in a uptrend using pivot points. Use the next key level above price as profit target, and use a price point between the key level where trade was initiated and the one below it as entry point.

In a market with a bearish bias, entries made at R3 for instance will have R2 as profit target. If the price breaks through R2, then R1 becomes the next profit target, in that order. The next profit target is the lower key price level, but if that level is broken by the candle, then the one below it becomes the next profit target. In setting a stop loss, the stop loss level is set above the key level from where the trade entry was made. This way, if the price action goes against the trader’s short position, the key price level from point of trade entry will most likely shield the stop loss from being triggered.

A demonstration of what has just been described above is seen on this chart below:

Our reference point starts from the bullish pinbar which opened above the central pivot, conferring a bullish bias for the day in question. The entry is made at the low of the next candle, which appropriately bounced off the central pivot. A stop loss should therefore be set between central pivot and S1. The price moved upwards in tandem with the bullish market bias, and instead of closing at R1 which is the next logical profit target, the reference candle broke above it, opening the way for R2 to become the next profit target. The price failed to break R2; it merely tested it, confirming R2 as the profit target. This is where the trader who made the entry at the central pivot should exit the trade.

Next, we see the price make a brief retracement to R1, where another pinbar formed, confirming that another trade entry on the bullish side could be made here. The re-entry trade candle broke through R2, opening the way for R3 as the profit target. The appropriate stop loss ought to be set between R1 and central pivot.

Having hit R3 as solid resistance, the bias for trade changed to a bearish one, providing impetus for the short trade commenced at R3 which failed to break R2. R2 would therefore be the profit target, with stop loss set at above R3. After R2 was tested multiple times as a support, it eventually gave way. The trade is therefore made at the next candle which pulled back from breakout candle’s low to R2. The stop loss would be set at between R2 and R3. This new move broke through R1 and ended at central pivot, making the central pivot the next target for the trade.

The price retreated back to R2, which resisted any further bullish retracement. This would mark the point of another short trade entry, using a stop loss set between R2 and R3. This new bearish move was a very strong one, tearing through R1, central pivot and S1. The move eventually failed to break S2, and this would mark the new trade profit target.

Study this chart very well to understand the principles of pivot point trading. Watch the pattern and behaviour of thecandlesticks at these key price levels. We see the pinbars that provided bullish trade entry signals. We also see the pinbars at R3 and R2 which provided indications that these levels were good areas to go short. Breakout candles show the way to the next key levels as profit targets, enabling traders to extend their profitable runs.

When you get it right, pivot points can then be incorporated into your trade strategy arsenal.

Pivot Point Trading: Trade Like the Pros

Pivot Point Trading – Introduction

Many professional daytraders utilize pivot point trading in their trade plans.

We like to use them each morning to identify who was in control during the overnight session.

During the US session, we like to use them as potential price targets and levels of support/resistance to qualify trades from.

We’ll cover the nitty-gritty of pivot point trading soon, but first, let’s get you caught up with the basics!

Pivot Point Trading -The Basics

A little fun fact about pivot points is that they originated from floor traders in the equities and commodities pits.

These traders would use them to assist their trading throughout the session. By framing the day based on the range of the previous day, these traders would have a framework to analyze the market.

As pivot points estimate future support or resistance levels, they are considered to be leading indicators.

Also known as floor trader pivots, these are key technical levels that are calculated using an instruments previous high, low and closing price.

Daily pivot levels use the parameters of the previous days trading range in their calculation. While weekly pivots will consider the previous week’s trading range. And monthly pivots will base the calculation on the previous month’s range.

Standard pivot points consist of 5 pivots: two support levels, two resistance levels, and a daily pivot level.

Pivot Point Trading Example

The main pivot point (PP) sits in-between the support and resistance levels and acts as a sentiment indicator for the session.

Most trading platforms will automatically plot these levels on your charts. However, if you want to know how to calculate them manually, here are the formulas:

Pivot Point (PP) = Previous Day (High+Low+Close)/3

Support 1 (S1) = (PP X 2) – High

Support 2 (S2) = PP – (High – Low)

Resistance 1 (R1) = (PPx2) – Low

Resistance 2 (R2) = PP + (High – Low)

Since pivot points are drawn from the previous day’s data, they are put forth in the current period and remain static throughout the session.

Now that you’re all caught up with the basics, let’s dive into how to effectively use pivot points in your trading.

Interpreting Pivot Points – Sentiment Indicator

One of the primary uses of pivot points in our trading is to determine market sentiment for the current session.

When we log into our trade stations in the morning, we will often check to see where the market is trading in relation to these levels.

We place the most emphasis on the daily pivot point since it is the primary support/resistance and sets the general tone for price action.

When a market is trading above the daily pivot, we consider sentiment to be bullish for the session. Alternatively, if the market is trading below the daily pivot we favor bearish sentiment on the session.

Further to this point, if we see a breakout above the daily pivot this suggests strength with a target to the first resistance (R1). If price reaches R1 and breaks above it, this shows even more strength and the second resistance (R2) now becomes the target. Alternatively, a breakdown below the daily pivot will signal weakness with a target to the first support (S1). If the market trades below S1, this shows even more weakness and the second support (S2) now becomes the target for sellers.

CL PIVOT POINT TRADING

The above example is taken from the December 06, 2020 session.

Crude Oil was trading below the daily pivot and between the S1 and S2 pivots into the US open.

This shows overnight weakness and confirms that the sellers are in control of the market at the moment. Knowing this, we will favor short trades for this session until the market proves otherwise.

As you can see with this example, pivot points provide a quick way to gauge market sentiment. This simple trick will prepare you for the current session and help keep you on the right side of the market.

Pivot Point Trading – Support and Resistance Levels

Now that you know how to determine market sentiment using pivot points, let’s look into how we use them to qualify trades.

In our trading plan, we use pivot points just like traditional support and resistance. The key for us is watching how price behaves as these levels come into play.

If a market successfully takes out a support or resistance level, there is a higher probability that it will want to test the next level.

Alternatively, when a pivot level is successfully breached, it should reverse its role and become support if it was previously resistance and vice versa. The target in this scenario is the next pivot level.

Rule of Thumb

One thing to note is that the market tends to spend most days trading within the range of resistance 1 (R1) and support 1 (S1).

When a market trades through these initial pivots, the secondary pivots (R2 & S2) then become the next objective for buyers/sellers. While this is an indication of strength or weakness in the market, these secondary pivots can also signal potential overbought or oversold conditions. To this point, many intraday reversals form around the secondary pivots so they often provide great tradeable setups.

We will never set a blind limit at a pivot point because the market can blast right through it. We need to see certain confluence at the level in order to take a trade.

Does the pivot point line up with another key intraday level such as the Globex high or low? Does the context of price action make sense for the trade? Do we see price action patterns forming at the level to confirm it?

These are some of the things we consider before qualifying a trade using pivot point trading.

Let’s take a quick look at the 5-minute chart of crude below:

CL PIVOT POINT TRADING

The blue lines above indicate the start and end of the GLOBEX session each day. After 6 pm EST, the daily pivots will calculate for the new session and we can start to scout for opportunities.

As you can see, the market likes to trade around these levels on an intraday basis. What you will notice, is that the market tests these pivots several times throughout the day as support and resistance. Not every test of a pivot will lead to a good trading opportunity, however, when qualified correctly there will be plenty of low-risk setups to take.

Case Study – Session #1 (Left Session)

If you focus your attention on the first session on the left-hand side, the market opened under the daily pivot. This indicates the shorts are in control of the market to start the session. In this scenario, the daily pivot (red) should act as resistance and the S1 pivot should act as support. The market rallies higher to test pivot during the London session and we see it stall at this level. A bearish price pattern forms and the market sells off below the initial support pivot (S1). After breaking this pivot (S1), the next target is the secondary pivot (S2).

The market eventually trades down below this level (S2) and then stages a rally back above it. Once we see this breakout above S2, we have two options:

(1) Look for a counter-trend long on a role reversal of S2 from previous resistance to support. If the market comes back down into this level we can look to qualify a long trade and target the S1 pivot for our exit.

(2) Alternatively, since the market is below the main pivot and above S2, we can wait to see how price behaves if it comes back in S1. This pivot held as support earlier in the session and was then breached to the downside. If the market trades back into this level, it should flip roles and act as resistance this time around.

In this scenario, both options would have led to valid trading opportunities. The market held S2 as support and moved into S1 which held as resistance. After this price action took place, the market spent the remainder of the session ranging between S1 and S2.

Case Study – Session #2 (Middle Session)

The previous session closes below S2 and the new session opens right at the daily pivot. There is an initial test of the pivot early in the Asian session and the market sells off. The Asian session is full of head fakes so we prefer not to trade during this time.

We see another test of the pivot into the London session which stalls the market again. This time around there is more volatility so we can look to qualify a short trade here. The pivot holds as resistance and the market pulls back again. We don’t quite reach the S1 and the market trades back into the pivot point again. At this point, each test of the pivot has led to a sell-off, however, each pullback is making a higher low indicating buying interest.

During the New York session, the market finally trades back above the pivot. At this point, you can look to qualify a long trade on a retest of the pivot as support. The context of price action supports this idea because there were three previous failed attempts to breach the upside of the daily pivot. The target for this setup is the next pivot level at R1, which is hit shortly after the retest.

After breaking above the R1 resistance, the market uses this level as support for several bounces until it finally breaks back below it. These bounces offer great short-term opportunities and the breakdown of this level, offers a counter-trend opportunity to target the main pivot.

Case Study – Session #3 (Right Session)

In the final session on the chart above, the market opens above the pivot level. We can see this pivot hold as support for several bounces during Asia/London sessions. None of these bounces show any follow through so we can disqualify longs at this level. After London open, the market sells off below the pivot level and we see an expansion of volatility. At this point, we can look for a retest of the main pivot to hold as resistance for a short opportunity. If the market reaches back into the pivot and stalls, we can look to qualify a short trade. Alternatively, if the market trades back up into the pivot, consolidates, and then breaches it back to the upside. We can look to qualify a long trade on a retest of the pivot as support and target the R1 pivot level above.

The Bottom Line

In this article, we demonstrated how pivot point trading can be a very advantageous technical tool for traders.

Pivot points allow you to gauge market sentiment for a session with a forecast of potential supports and resistances.

This, in turn, helps you get prepared to react to the market’s movement and capitalize on low-risk opportunities.

If you want to join us in our live trading room to see pivot point trading in action, check out the Pro Trader package here >

Want to trade more passively, checkout our newsletter, trade ideas and live analysis in the Swing Trader package here >

The information contained in this post is solely for educational purposes and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable to your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.

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