Forex Trading Basic

Pivot Point Break Out Strategy in Forex Trading

Pivot Point Break Out Strategy in Forex Trading

Pivot Point Break Out Strategy: Market does not always start above/below the PP and stay in that position for a long time. In fact, while you are be trying to take a bounce from Pivot, the market can break it. If you were a former bouncer, you must be willing to exit your trade at the earliest opportunity possible, and then switch gears to take the advantage of break.

That is how Pivot marks the flag where you must be willing to switch your allegiance: you can start your allegiance depending on where the price is similar to opening Pivot, bullish if above and bearish if below. However, if the price breaks Pivot, you must be willing to shape-shift: if the price breaks up through Pivot, you must be willing to charge headlong like a bull and buy the market; if it breaks down through Pivot, you must be willing to sell short the market.

Pivot Point Break Out Strategy

when the market breaks through the pivot to the upside, it indicates that traders are bullish on the pair, and you should start buying. Conversely, when the price breaks through the pivot on the downside, it indicates that traders are bearish on the pair and that sellers could have the upper hand for the trading session.

Entry Rules:

Entry & Exit RulesLongShort
Entry RuleIf price has traveled below PP and breaks up through PP, buy at market or stop x pips above the PP Level. If you have missed the break, you can buy the retest of the break at PP level. If the break happens too fast and there is no retest, you can take up a long position at R1, so long as momentum is strong and it looks like it is going to break as well.If price reaches above PP and breaks down through PP, sell at market or stop entry x pips below PP level. Alternatively, if you have missed the break, you can sell the possible retest of the break at PP level. If the break happens too fast and there is no retest, you can take up a short position at S1, so long as momentum is strong and it looks like it is going to break as well.
Entry Rule (Conservative)If the price breaks the PP and H1 close above the level, then you can put in a buy limit order at the PP for getting in on the retest.if the price breaks down through PP and the H1 closes below the level, then you can put in a sell limit at the PP level for getting in on the retest.
Stop Loss RuleSL fixed pips below PP, or a few pips below the S1 level for more trade leewaySL fixed pips above PP or a few pips above the R1 level for more trade leeway
Take Profit RuleTP at R2. If price reaches R1, set your SL to PP level to minimize risk.TP at S2. If price reaches S1, set your SL to PP level to minimize risk.

Example of EURUSD M30 using Daily Pivots:


example-of-eur

Pivot Point Break Out Strategy: Explanation

Above, the EURUSD started the day below the PP level, which indicated a short bias for the day. Traders started out shorting the currency pair without waiting for a test of PP, and they shorted it till it it stopped at the S2. then S2 was retested once more, and at the time it held firm, the Bullish Bouncers waiting at S2 drove up the market to 1.4045 Pivot, and there a short 2 hour battle was waged. The first H2 bar that reached Pivot broke through it by 10 pips, which gave some hope to the Bulls. However, the following bar fell backwards by 25 pips, at that moment  as it was falling, it would have looked as if the Bearish Pivot Bouncers had won, and that the EURUSD had been successfully rebuffed at Pivot. But that bar ended with a interesting turnback. If you look closely at the candlestick: the long lower shadow signals that the bears controlled the ball for part of the game, but they lost control by the end as the Bulls made a nice comeback. That comeback was so impressive. It gave hophe to  the Bulls to drive the market straight on through to break the PP on the next bar, and as PP was successfully breached the game was in their favor for the rest of the time frame. There was another 4 hour battle at the R1 level, but it was also knocked out as the Bulls drove the market up to R2.

You can Notice how the the Bears on the retreat for the day staged a nice counterattack at the R2, violently pushing down the market to retest the PP level. This is a good illustration of Strategy #3, where one can sell the market at R2 or R3 and take advantage of overbought conditions.The short bouncers at R2 would have been able to pick up a fast 60 pips.

It seemed that the day was ultimately in favor of the Bulls because they had successfully broken PP earlier in the day, they turned the game in their favor, on the side  the Bears gave up their counterattack at PP, and the Bulls were given another chance to get on board for nice bounce up at PP.

Because of this particular nature and popularity, the EUR/USD is a great currency to play with to take advantage of Pivot strategies.

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Please note that: because of the differences in trading conditions, all the forex strategies can not be applied to all broker platforms. So, Choosing Forex broker is a vital task. We would like to recommend you HYCM Broker. This broker has all the positive trading conditions necessary for any forex strategy to work. Read HYCM Broker Review to learn more.

READ MORE

Chapter 7

Forex Trading Strategies

Lesson 1profitable Forex trading strategies
Lesson 2Most popular trading strategies
Lesson 3Forex Scalping Strategy
Lesson 4Forex Trading Hedging Strategy
Lesson 5Forex Trading Trendline Analysis
Lesson 6Forex Trading Breakout Strategy
Lesson 7Pivot Point Reversal Strategy
Lesson 8Pivot Point Break Out Strategy
Lesson 9News Trading Strategies
Lesson 10Marker Sentiment Analysis
Lesson 11Pivot Points Trading Strategy

Go back to Main Page: Forex Trading For Beginners

About the author

Syed Nazim

Syed Nazim is the Marketing Manager of RedMaroon, a Digital Marketing Agency for Financial Institutions. He is also involved with Forexing24.com as a writer and financial Analyst. He is a brilliant marketing geek with vast experience in every sector of Digital Marketing. He likes sharing strategies, tactics and proven methods to help you build a business and live the life of your dreams.

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