How to Apply Pivot Points Effectively when Trading Forex

Compare Forex Brokers with Rebates. Selling in the area was the right decision to take. The pivot point is the level at which the market direction changes for the day. As an alternative to calculating pivot points on your own, you can use our very own pivot point calculator. The most prevalent methods of trading a downtrend include, retracement swings at R3 or a breakout of the established S4 level.

Pivot strategies: A handy tool for forex traders and how they can be combined with other indicators to develop other trading strategies. Calculating Pivot Points Two Strategies Using Pivot.

How are these levels calculated?

A perfect set would be for the market to open above the pivot level and then stall slightly at R1 then go on to R2. You would enter on a break of R1 with a target of R2 and if the market was really strong close half at R2 and target R3 with the remainder of your position. Unfortunately life is not that simple and we have to deal with each trading day the best way we can.

I have picked a day at random from last week and what follows are some ideas on how you could have traded that day using pivot points. The green line is the pivot point. The blue lines are resistance levels R1,R2 and R3. The red lines are support levels S1,S2 and S3. There are loads of ways to trade this day using pivot points but I shall walk you through a few of them and discuss why some are good in certain situations and why some are bad.

At the beginning of the day we were below the pivot point, so our bias is for short trades. A channel formed so you would be looking for a break out of the channel, preferably to the downside. In this type of trade you would have your sell entry order just below the lower channel line with a stop order just above the upper channel line and a target of S1.

The problem on this day was that, S1 was very close to the breakout level and there was just not enough meat in the trade 13 pips. This is a good entry technique for you. Just because it was not suitable this day, does not mean it will not be suitable the next day. This is one of my favorite set ups. The market passes through S1 and then pulls back.

You need a couple more indicators to complement it for it to become a highly profitable trading strategy. One of our live traders 2nd Lieutenant Jimmy has developed a strategy that has proven tremendously profitable hence we naming it after him. The key point is to find indicators that point out key levels which reversals could potentially happen. As a combination of these indicators around pivot points can greatly increase your accuracy in picking an extremely high risk: There are usually 2 areas of focus when observing the TFA Sniper on a single time frame:.

You can see in the above picture the areas of consolidation of the TFA Advanced Fibonacci Waves prove as great resistance even if just observing on a single time frame. While others have traded purely off these fibonacci waves by themselves, it is highly recommended to combine it with other indicators to give clearer confirmation of entry valid entry signals. In this case, we are looking for a combination of:.

Wide fibonacci lines usually stand by themselves, but they hold a lot of power in them. These are key reversal points and the wider they are, the stronger they are in forecasting reversals. An additional point you can look out for to add further conviction to your trade are candlestick reversal patterns. There are a lot of information out there on candlestick reversals and I urge everyone to read up on them as much as possible.

There are numerous ways we can target take profit levels and manage our trades. You may have to import the indicator and then extract the files in the indicators folder of your trading platform. Once you have done this, you will be able to apply the pivot point indicator directly on your chart.

When you plot your pivot point indicator on your chart, you should see something like this: The horizontal lines on the chart are the pivot points. The blue line is the central pivot point. The lines above the main pivot point are R1, R2, and R3. We also put three vertical lines on the chart. These three lines separate the different trading days.

Notice that the pivot levels of every trading day are lined differently. This is so, because each trading day has different daily high, low and close values. In this manner, the pivot levels are different too. This is why there is a rapid switch in the levels of the pivot lines for every trading day.

There are few basic rules when trading pivot points. Since we have discussed the structure of the pivot points and the way they are calculated, it is now time to demonstrate pivot trading using some chart examples. Have a look at the image below: The circles show moments when the price consolidates and hesitates in the area of a pivot point. The arrows show moments when the price finds support or resistance around a pivot point level. In this example we see price hesitate around a level 4 times and in 8 instances we have a price reversal after interaction with a pivot point.

Now that we have seen pivot points in action, we will now turn to applying some pivot point trading strategies. Firstly, I will show you how to use pivot points as a part of a pure price action trading strategy, without the assistance of any additional trading indicator. We will rely on regular breakout rules to enter the market.

If we enter the market on a breakout, we will put a stop loss below the previous pivot point. We will target the second pivot point level after the breakout.

Take a look at this chart: There are two breakouts through the PP level, which could be traded. The first breakout through the blue pivot line comes in the beginning of the chart. A stop loss order should be put right above R1 — the first pivot level above the main pivot point. The target should be S2 — the second level below the main pivot point. It is very important to emphasize, that if your trade is held overnight, then the pivot points will likely change for the next day.

In this manner, your stop loss and target may need to be adjusted to reflect the new levels. The price starts increasing after reaching the target. This is a good long position opportunity. If you want to take this long opportunity, you should place your stop loss order right below S1, which is not visible on the picture in this particular moment. At the same time, your target should be on R2. After breaking the main pivot point the price starts increasing and it breaks through R1.

On the next day, the pivot levels are different. The price decreases to the central pivot point and it even closes a candle below.

Trading Strategies Headlines

Now that we have seen pivot points in action, we will now turn to applying some pivot point trading strategies. Trading Pivot Points with Price Action Firstly, I will show you how to use pivot points as a part of a pure price action trading strategy, without the assistance of any additional trading indicator. Pivot Points; Trading Strategies Headlines. Scalping With Pivot Points. These are just two of the most popular ways to approach scalping Forex pairs with pivot points. We will continue. Learn how to calculate pivot points in forex trading with derivative formulas for greater returns such as with r1 r2 r3 s1 s2 s3. A great number of trading strategies rely on The examples.