Pivot point forex trading strategy

By definition, a pivot point is a point of rotation. The prices used to calculate the pivot point are the previous period's high, low and closing prices.
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There is a long lower candlewick below R2, which looks like a good place for our stop loss order. The price then begins hesitating above the R2 level. In the last hours of the trading session, BAC increases again and reaches R3 before the end of the session. This is an exit signal and we close our trade. This is another pivot point trading approach.

However, this time we will stress the cases when the price action bounces from the pivot levels. If the stock is testing a pivot line from the upper side and bounces upwards, then you should buy that stock. If the price is testing a pivot line from the lower side and bounces downwards, then you should short the security.

The stop loss order for this trade should be located above the pivot level if you are short and below if you are long. Pivot point bounce trades should be held at least until the price action reaches the next level on the chart. This is how it works:.

How to integrate Pivot Points in your Day Trading Strategy

Above is a 5-minute chart of the Ford Motor Co. The image shows a couple of pivot point bounce trades taken according to our strategy. Our pivot point analysis shows that the first trade starts 5 periods after the market opening. The price goes above R2 in the opening bell. Then we see a decrease and a bounce from the R2 level.

This creates a long signal on the chart and we buy Ford placing a stop loss order below the R2 level. The price enters a bullish trend and we will stay with the trade until Ford touches the R3 level. We close the trade when this happens. However, the price bounces downwards from the R3 level. This is another pivot point bounce and we short Ford security as stated in our strategy.

A stop loss order should be placed above the R3 level as shown on the chart. After a short consolidation and another return and a bounce from the R3 level, the price enters a bearish trend.

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We hold the short trade until Ford touches the R2 level and creates an exit signal. These are the setups you really want to hone in on. Think about it, why buy a stock that has resistance overhead. You can just as easily invest in a stock that has the wind to its back and you can ride the wave higher. If there is no one looking to sell at a pivot point resistance level and there are no swing highs — that equals odds in your favor.

I mean even when things go wrong, you are still likely to come out even or at least have a fighting chance. Once a stock has cleared all of the daily pivot points, the next thing you need to look for are the overhead Fibonacci extension levels and swing highs from previous moves. These levels can be used as your target areas for your trades.

You can then use these levels to calculate your risk-reward for each trade. Back to the trade example above, I bought AAP on the break of both the pre-market and intra-day high. At this point as previously stated in articles across the Tradingsim blog, I do not get greedy. I always look to clean off my trade slightly below the level.


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  • Pivot Points - ?

Try applying these techniques to your charts to identify the levels tracked by professional traders. This is something I will highlight quickly without the use of charts. One point I am really pushing hard on the Tradingsim blog is the power of trading high float, high volume stocks. Nowadays so many gurus are talking about low float, momo stocks that can return big gain.

Well, I am here to tell you that high float is still in [3]. The beautiful thing about high float stocks is that these securities will adhere to and trade in and around pivot point levels in a predictable fashion. If you are a trader just starting out in pivot points and want to get a handle on things, you will want to start with these large-cap stocks.

Once you get a handle on things, you can always progress to the penny stocks. For me, I would obsess about when to exit my trade. My entries were solid but I always had sellers remorse. I would either regret getting out too early or holding on too long. To this point, once I included pivot points in my trading it was like going from the dark and stepping into the light.

The beauty of using pivot points is that you have three clear levels: 1 where to enter the trade, 2 where to exit the trade and 3 where to place your stop.

How to trade with Pivot Points in Forex - beginner’s guide

If you are the type of person that has trouble establishing these trading boundaries, pivot points can be a game-changer for you. Entry, Exit, Stops. If you struggle with where to place your stops, entries and profit targets, pivot points take care of all of that for you. The other major point to reiterate is that you can quickly eyeball the risk and reward of each trade.

Therefore over time, you will inevitably win more than you lose and the winners will be larger. The other key point to note with pivot points is that you can quickly identify when you are in a losing trade. If you are going long in a trade on a break of one of the resistance levels and the stock rolls over and retreats below this level — you are likely in a spot. This does not mean you need to run for the hills but it does mean you need to give the right level of attention to price action at this critical point.

The other point is to consider the amount of time that passes after you have entered your position. If you are sitting there below or right around the breakout level 30 minutes after entering the trade — the stock is screaming warning signals. Do not over think exiting bad trades. If you find yourself in a trade that is stalling or not holding a level just exit the trade. Waiting around for something to happen will lead to more losses. Beyond the money, the major issue you will face is the emotional turmoil of tacking such a loss. Remember, do not think — just close the trade!

The next question you are likely to ask yourself is where will NANO stop? Well looking at the pivot points for the day, you really have no way of making that determination. As you can see in the chart, there are a number of resistance levels near our closing price on the day.

Strategy #1: Trading the Bounce (Reversal) from Pivot

Like any other indicator, there is no guarantee the price will stop on a dime and retreat. The point of highlighting these additional resistance levels is to show you that you should be aware of the key levels in the market at play. You will need to look at level 2 or time and sales to see which level you need to focus on. This is the real challenge. If you immediately sell you will possibly forego big profits.

For me personally, I sell out at the next resistance level up. While I am likely leaving money on the table, there is a greater risk of me being greedy and looking for too much in the trade. Trading with pivot points allows you the ability to place clear stops on your chart.


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    7. A very important point to take away from this is that the behavior of price in relation to the pivot points remains the same for all timeframes. Some of the strategies we will discuss here work proportionally the same on all timeframes on all pivot point periods which makes this indicator super easy to use. This statistical rule says: The middle pivot point also known as the main pivot point is reached by the price in 70 — 80 percent of the cases during the trading session.