Pivot Points Trading Strategy: We will discuss two different Pivot point Trading Strategies in this article:
Pivot Points Trading Strategy
We can easily develop many strategy using the pivot level as a base, but the accuracy of using pivot lines increases when Japanese candlestick formations can also be identified. For example, if prices traded below the central pivot (P) for most of the session and then made a foray above the pivot while simultaneously creating a reversal formation (such as a shooting star, doji or hanging man), you could sell short in anticipation of the price resuming trading back below the pivot point.
Pivot Points Trading Strategy #1
There is a perfect example of this in Figure 3, a 30-minute USD/CHF chart. USD/CHF had remained range-bound between the first support zone and the pivot level for most of the Asian trading session. When Europe joined the market, traders began taking USD/CHF higher to break above the central pivot.Bulls lost control as the second candle became a doji formation. Prices then began to reverse back below the central pivot to spend the next six hours between the central pivot and the first support zone. Traders watching for this formation could have sold USD/CHF in the candle right after the doji formation to take advantage of at least 80 pips worth of profit between the pivot point and the first level of support.
The chart above shows a pivot point being used in cooperation with a candlestick pattern to predict a trend reversal. Notice how the descent was stopped by the second support level.
Pivot Points Trading Strategy #2
Other strategy that traders can use is to look for prices to obey the pivot level, therefore validating the level as a solid support or resistance zone. In this type of strategy, you’re looking to see the price break the pivot level, reverse and then trend back towards the pivot level. If the price proceeds to drive through the pivot point, this is an indication that the pivot level is not very strong and is therefore less useful as a trading signal. However, if prices hesitate around that level or “validate” it, then the pivot level is much more significant and suggests that the move lower is an actual break, which indicates that there may be a continuation move.
In Figure 4 the 15-minute GBP/CHF chart shows an example of prices “obeying” the pivot line. For the most part, prices were first confined within the mid-point and pivot level. At the European open (2am EDT), GBP/CHF rallied and broke above the pivot level. Prices then retraced back to pivot level, held it and proceeded to rally once again. The level was tested once more right before the U.S. market open (7am EDT), at which point traders should have placed a buy order for GBP/CHF since the pivot level had already proved to be a significant support level. For those traders who did do that, GBP/CHF bounced off the level and rallied once again.
This chart is good example of a currency pair “obeying” the support and resistance identified by the pivot point calculation. These levels become more significant the more times the pair tries to break through.
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.
Forex Trading Strategies
|Lesson 1||profitable Forex trading strategies|
|Lesson 2||Most popular trading strategies|
|Lesson 3||Forex Scalping Strategy|
|Lesson 4||Forex Trading Hedging Strategy|
|Lesson 5||Forex Trading Trendline Analysis|
|Lesson 6||Forex Trading Breakout Strategy|
|Lesson 7||Pivot Point Reversal Strategy|
|Lesson 8||Pivot Point Break Out Strategy|
|Lesson 9||News Trading Strategies|
|Lesson 10||Marker Sentiment Analysis|
|Lesson 11||Pivot Points Trading Strategy|