Pivot Point Trading Strategy: Two Specific Setups To Watch For

Pivot point trading can greatly simplify Forex day trading. Pivot points provide good reference points at which to enter or exit trades as well as give an indication of the market bias. You can either go online and download a pivot point calculator or use the free one referenced in the resource box below. Simply get the High, Low, Close, Open figures from the daily chart by checking the previous day's candle values and enter them into the calculator. You can then draw horizontal lines on your chart marking the Central Pivot Point and then the other reference levels such as S1, S2, R1, R2 (S for support, R for resistance). When pivot point trading it is also a good idea to put the mid reference points in also, M1, M2, M3, and M4 as price often will respect these levels.

The Indicators You Need For The Setup It is good to have the 15 minute, 60 minute, and 4 hour charts displayed. After marking the pivot point levels on your 15 minute chart, also show the following on the three time frames: y y y The 200 EMA (Exponential Moving Average) Do Fibonacci calculations on the most significant highs and lows on the three time frames Mark significant previous support and resistance on the 60 minute and 4 hour charts with a horizontal line

Time Of Day Look for this setup around two time periods: y y London Open (700 GMT) London Close (1500 GMT)

The Asian session does not generally cause price to make new highs or lows. Trading orders and flows build up after the open of the European session in Frankfurt and take on new momentum once London opens an hour later. Similarly, price action often slows considerably around the time of London closing.

Now check the range of the current day's trading. Next consult your higher time frames. you can enter a high probability trade and catch between 20 and 30 pips on the retracement. However.Look For This Setup At London Open Check to see if price is anywhere near M4 or M3 on the upside or M1 or M2 on the downside on your 15 minute chart. Has it equaled or exceeded the average range for the last few days? If so. Look For This Setup At London Close Now we come to the other end of the trading day which also lends itself to pivot point trading. or the 200 EMA. or a previous support resistance line. you need to consider other factors. These two pivot point trading strategies occur with surprising frequency a number of times a month. This level could be around a pivot point which also coincides with your other indicators: y y y 200 EMA Fibonacci retracement extension levels Previous strong support or resistance Next check your Average True Range indicator for the last 5 or 10 days and see what kind of range price has been moving in. Remember. . nothing is guaranteed but the more factors you have coinciding at a specific level around a pivot point. pivot point trading suggests that when price is around M4 or M3 you are in a sell area and when price is around M1 or M2 you are in a buy area. Again check to see if price has reached a key level by the end of London close. Check to see where a 20-30 stop will put you and whether there are other levels of support and resistance nearby to offer protection and start taking profit as price approaches the other pivot levels either on the way up or on the way down. there is a high probability price will test the M levels and then reverse and go in the opposite direction for the day. the 60 minute and 4 hour to see if any of those M levels coincide with a Fibonacci retracement or extension level. If you get a combination of those factors. This will vary according to the currency pair. the more likely price will react at that point. Of course. The EUR/USD cross for example often puts in between 76 and 100 pips per day. and if price is at a strategic pivot point which also matches with other indicators. Often price will have done its run for the day by the time of London close and a retracement can be expected.

Most definitely add pivot point trading to your list of trading strategies! Pivot Point Trading: 7 Guidelines For Success What do we mean by pivot point trading? It simply means that Forex traders take into account pivot points calculated from the previous day's trading range and use them as reference points to identify support and resistance levels. No. Pivot point trading puts emphasis on these levels. and trade with confidence. as with any technical indicator. However. MACD. Do not enter or exit trades purely on the basis of pivot points. Fibonacci levels. to be high probability. Midnight GMT is a very quiet time in the market with very little volatility and provides a good opportunity to calculate more accurate pivot levels going from midnight GMT to midnight GMT the following day. close and open values of the previous day's price action. low. The following 7 guidelines can help pivot point trading be more profitable: No. 2 While some traders living in various parts of the world may calculate their pivot points according to the time zone in which they live. 1 Pivot points should not be used as a standalone indicator. get your eyes used to looking for the combination factors surrounding pivot points.Practice these methods. and moving averages to identify and confirm key levels of support and resistance which may provide trading opportunities. No. and uses them to guide entry and exit points for trades. needs to stay within certain parameters. there are limitations and pivot point trading. 3 . Taking the high. strategic levels can be identified which may or may not have an influence on price action. Use them in conjunction with other indicators such as candle patterns. a fairly safe standard for calculating the levels of pivot point trading is to use GMT (Greenwich Meantime).

check your other indicators to see if this would be a good place to go short. Traditionally. R1. Watch for specific behavior around the time of the London market open. A pivot point can provide a key level of support or resistance where price is likely to bounce for a 10-20 pip profit. No. understand what they actually represent. Price will often be seen respecting M1. and everything below the Central Pivot Point is a Buy area. M2. once a trader understands underlying reasons for price action. To calculate mid levels. Pivot points draw attention to these key levels which will often be strongly defended by traders who have a lot at stake.US dollar pair often puts in a daily average of between 75 and 100 pips. some working for large institutions and handling millions or even billions of dollars worth of currency. 5 Pivot point trading can be a useful strategy for entering and exiting trades at the right time. are taking positions according to previously established highs and lows in the market. .It is good to understand what is going on behind the scenes when it comes to pivot point trading. Sometimes there is a significant gap between these levels and calculating a mid point gives another point of reference. If price comes back to the M1 level check your other indicators to see if they confirm this would be a good level to go long. 6 The Euro . or a hanging man. tests the M4 level. 7 Pivot point trading helps mentally in establishing the buy zone and the sell zone. You may be able to get a slice of the 75-100 pip run for the day. Likewise. The retracement point at the pivot level would be a good place to put an entry order to be taken in when price comes back to retest at the pivot level. Price will often come back to test a level which is a pivot point and form a distinctive candle pattern such as tweezers. This is the reason pivot point trading can be so successful. No. and R2 pivot levels. M3. Or in the case of a trend. 4 It is good to calculate mid levels in addition to the S1. or M4. if price. (see the resource box for a free pivot point calculator) No. Thousands of traders around the world. Rather than just staring at candles on a chart. price may retrace to a pivot level before continuing its run. make sure you double check your analysis and have very good reasons for doing otherwise. S2. and then reverse and go on its 75-100 pip run for the day. simply subtract the level below from the level above and divide by 2. just around London open. No. If you go contrary to that. anything above the Central Pivot Point is a Sell area.

Forex Day Trading: Top 7 Checklist When Using Support And Resistance Why are support and resistance levels crucial when participating in the Forex day trading market? Simply put.Pivot point trading is just one of an arsenal of weapons available to Forex market participants. No wonder price at times has a hard time getting past a previous high or low. For this reason anyone who engages in Forex day trading should learn how to trade support and resistance. 2. However. does a trendline intersect at the same point? Does the support or resistance line match up with a Fibonacci level. For example. they represent key. 3. After all. The following checklist provides crucial guidelines: 1. Use the 7 guidelines above to use them safely and responsibly. Those levels are being fiercely defended by traders who have large amounts of money at stake and who do not want to see price break those levels. pivot points are a key element in their overall trading strategy. Before you consider Forex day trading at a support or resistance level. too many indicators can lead to decision paralysis. see if there are more factors that would indicate this is a key price level. A price high or low has more significance when it has a number of candles either side of it which are lower (in the case of a price high) or higher (in the case of a price low). either a retracement or an extension? Does the support or resistance level coincide with a pivot point if you are in the practice (and it's a wise one) of calculating pivot levels when Forex day trading? . Pay particular attention to price highs and lows on the daily chart as this time frame is commonly used by big traders. For many traders. it must be stated that many successful traders use just a handful of tools that become their favorites. Support and resistance levels are much more significant on the higher time frames. strategic price points at which traders processed orders involving millions or even billions of dollars.

Note: Although there are various ways to calculate the previous 24 hour period depending on where you live. using GMT as a standard is often beneficial. examining your charts. marking off the key levels each time you begin a new Forex day trading session. Forex Trading Education: The 7 Point Checklist For Using Trendlines Forex trading education naturally falls into two parts: . 7. Be sure you spend sufficient time studying it. The market spends most of its time in trading ranges or consolidation channels. If you are a Forex day trading scalper. but this simple indicator. 6. You need to accept that this is a characteristic of Forex day trading and adjust your mindset accordingly. 5. These Forex day trading scenarios can present excellent trading opportunities as you put an entry order in at the key level and wait for price to come back and pull you in. Don't chase after price once it breaks out of the channel (although many who engage in Forex day trading do so). set your entry level at the base of the channel if you are going long or at the top of the channel if you are going short. You will not get the optimal entry point. Price will often hesitate and retrace at these levels. can be one of the most powerful and effective Forex day trading tools available.4. Has a key support resistance level been broken? Then look to see if price will come back to test that level. Waiting for price to take you in either at the top or bottom of the channel means you can have a smaller stop and your price target is closer. Pay particular attention to the previous day's high and low. Succeed Or Fail? It is unlikely you will succeed at Forex day trading if you fail to understand or take into consideration support and resistance. Within a short time your dealing spread is covered and you are in profit. Identify the high and low of the trading channel and manage your trades accordingly. This indicator is that crucial! Yes there may be fancy indicators out there with all the bells and whistles. After identifying a trading channel or range and you see a trading opportunity. you can often grab a nice pull back of 10 pips or more at these strategic levels. Remember. Midnight GMT is a time when the market is generally very quiet and unlikely to make new highs or lows. resistance once broken can become support in the future and support once broken can become resistance in the future. marking where price reached a high or low during previous trading sessions.

or a pivot point. The daily chart is often their point of reference. 3. The line is then extended out into the future. 6. So if a trendline is crossed by a support/resistance line. look for times when price will come back to bounce the trendline before resuming the momentum. Here we provide a list of 7 guidelines for using trendlines as part of your Forex trading education using technical indicators. depending on the trend. They do not participate in intra day trading but rather look for position trades as they commit large sums of money to a transaction. For trendlines to be effective indicators. They can be powerful when used in combination with other factors. 15 minute. how to use a trading platform. 4. learning technical indicators. . do not have much significance by themselves. and then connecting that to the previous swing high or low (to the left on a candlestick chart). When using trendlines to identify an optimum entry point for a high probability trade keep the following points in mind: 1. the terminology. Take more note of price reaction around trendlines on the higher time frames. These trendlines can be constantly updated as new highs and lows are reached. If you want to get more specific. Add these two trendline methods to your Forex trading education: y When price has an upward or downward momentum (as opposed to moving within a consolidation channel). Trendlines on lower time frames such as 5 minute. and daily chart. That's why an effective Forex trading education doesn't rest on a single magic formula but rather involves an investment of time and energy as the new trader learns to combine the input from a number of tools to reach a clear decision. they must be used in conjunction with other technical indicators. Trendlines may be regarded by some as one of the weaker indicators although still valuable.First the easy part. Trendlines on a daily chart carry a high significance as this is the chart many traders of large institutions use. Secondly Forex trading education must include information on the mindset of a successful trader and the disciplines that need to be learned in order to handle the emotional and mental demands of trading in the market place. use the Tom DeMark method of drawing trendlines. 5. or 30 minute. 2. or a Fibonacci retracement or extension level. etc. Draw general trendlines across the significant lows in an uptrend or the significant highs in a downtrend and use them as a point of reference to show where support or resistance is likely to be found. This technical advisor recommends using the current swing high or swing low. specifically the 60 minute. you now have a combination of factors indicating this could be a suitable entry point. 4 hour.

That's trading! But more often than not this will happen and you get an excellent entry point. Keeping the seven point checklist above in mind should help keep you out of troublesome trades when using trendlines! . they form a more complete picture. rather than enter a trade at that point. 7. As part of your Forex trading education. giving you a clearly defined graphical representation of where price is and where it is likely to go. Remember they have limitations. In themselves they can give a false signal. choose a more optimal entry point by waiting for price to return and test the back side of the trendline that has just been broken. Used in combination with other technical indicators however.y When price breaks a trendline. This will not always happen and you risk missing being taken in. They do not provide a strong enough signal. use your demo account to experiment using trendlines. If you add this crucial piece of information to your Forex trading education you will minimize the number of trades you regret entering. Do not use trendline breaks or bounces as an entry signal by themselves.