The pivot points indicator will also plot 10 more distinctive layers of support and resistance levels.
Uses of Pivot Points
Usually, if we are trading above the central pivot point, it is a signal of a bullish trend. If the price is trading below the central pivot point, it is considered a bearish signal. Most modern trading software, or platforms, have the pivot points indicator in their library. Pivot Points are one of our favorite trade setups. It can yield positive results right away.
More often than not retail traders use pivot points the wrong way.
They usually sell to quickly when the first pivot point resistance level is reached and buy too soon when the first pivot point support level is reached. Now, before we go any further, we always recommend taking a piece of paper and a pen and note down the rules of the trading strategy. The best time to trade the pivot points strategy is around the London session open. However, it can be used for the New York session open with the same rate of success. Then we sell at the market. The trade logic behind this rule is simple. Once the market is displaying a disposition to trade below the central pivot point, we assume that the bearish momentum will continue to persist.
The next important thing we need to establish for our day trading strategy is where to place our protective stop loss. However, in order to accommodate any false breakouts, we also use a buffer of about pips above the central pivot point for our SL. Last but not least, we also need to define a take profit level for our pivot point strategy which brings us to the last step. We employ a multiple take profit strategy because we want to make sure we give the market the chance to reach for deeper support levels. The first pivot point support level is the first trouble area and we want to bank some of the profits here.
We also advice moving your protective stop loss to break even after you took profits. At the second pivot point, the support level is where we want to liquidate our entire position and be square for the day. Use the same rules for a BUY trade — but in reverse. In the figure below, you can see an actual BUY trade example. The best pivot point strategy PDF signals a good entry point near the central pivot point and also provides you with a positive risk to reward ratio which means that your winners will be higher than your losing trades.
Please leave a comment below if you have any questions on how to trade with pivot points! Skip to search form Skip to main content You are currently offline.
Some features of the site may not work correctly. DOI: Tian and Cong Quan and J. Zhang and H. Cai Published Computer Science Journal of Intelligent Learning Systems and Applications Various trading strategies are applied in intraday high-frequency market to provide investors with reference signals to be on the right side of market at the right time. However, given the less liquidity in commodity futures market, profits decrease and even be neutralized by the relatively high commissions.
View via Publisher. Save to Library. Create Alert. 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.
Pivot trading strategies pdf files
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. However, the candle is a bullish hammer, which is a rejection candle formation.
Pivot Points
This hints that the trade should stay open. Furthermore, the stop loss below S1 is still untouched. The price then starts a consolidation which lasts until the end of the trading day. When the next trading day comes, the pivot points are readjusted again and they are tighter.
The main pivot point is higher. The price tests the main pivot point as a support again and bounces upwards. This implies that the uptrend might continue, which puts on the table a third trading opportunity.
If you go long here, you should place a stop right below R1. Since the trade is long and it is open on a breakout through R2, the target limit order should be placed somewhere above R3 we have no R4 level. You could also use your own price action rules to determine how long you should stay in the trade. The point of this strategy is to match a pivot point breakout or bounce with a MACD crossover or divergence.
When you match signals from both indicators, you should enter the market in the respective direction. A stop loss should be used in this trading strategy the same way as with the previous strategy. Your stop should be located on the previous pivot level. You should stay in the trade until the MACD provides an opposite crossover.
The image below will make the picture clearer for you. The image shows one long and two short position opportunities. Signals are based on pivot point breakouts and MACD crosses. We start with the first trading opportunity which is short. MACD lines cross downward and we get the first signal for an eventual downtrend. Few hours later we see the price breaking through the main pivot point, which is the second bearish signal in this case.
A stop loss should be put right above the R1 pivot point as shown on the image.