- Ranging Markets
In a ranging market, price moves between a boundary of support and resistance levels as it forms high and low curves on the pivot point levels. These points tend to behave like the levels of traditional support and resistance and since they are always watched by many traders the prophesy is always fulfilled.
The best way to trade pivot points is to treat them as normal support and resistance levels. Price moves up and down in a wave hitting both the support and resistance levels as it makes pivot points. This gives you more opportunities to buy or sell as it reverses back from the support or resistance levels.
It is very important to combine the pivot point entries with candlestick reversal patterns when trading bounces. This additional confirmation gives a strong entry signal. The stop-loss is placed just below or above the entry point. The immediate target is the immediate pivot level zone as we had we discussed in our previous lesson.
Lets take a look at the example below on the EURJPY with Daily Pivots;
On the chart below we have a range market. It is ranging between Daily Pivot and Daily S2. So these are the levels where the entries (Buy &Sell) will be made after a clear candlestick reversal formation and the targets on the immediate next pivot level which in this case is Daily S1.
From our above EURJPY chart;
Buy 1 is a bounce off the pivot level support (Daily S2) confirmed by the Bullish engulfing candle. The stop-loss is set just below the candlesticks and the target (Buy Target 1) is the immediate pivot level resistance( Daily S1).
Sell 1 is also a bounce off the pivot level resistance (Daily Pivot) confirmed by the Shooting star. The stop-loss is set just above the candlesticks and the target (Sell Target 1) is the immediate pivot level support( Daily S1).
Buy 2 is a bounce off the pivot level support (Daily S2) confirmed by the Hammer reversal pattern. The stop-loss is set just below the hammer and the target (Buy Target 2) is the immediate pivot level resistance( Daily S1).
Sell 2 is a bounce off the pivot level resistance (Daily Pivot) confirmed by the Shooting stars. The stop-loss is set just above the Shooting star and the target (Sell Target 2) will be on the immediate pivot level support( Daily S1).
2. Trading Breakouts
Like support and resistances levels, pivot point levels can never hold forever. Price will at one point violet the prophesy and breakthrough. As you are always on watch, we can take advantage of the breaks on these levels and make a profit. Break out trades perform best on trending markets.
Let’s look some examples below;
The chart below is AUDUSD, Daily with monthly Pivots.
There was a pause as price approached the resistance zone on Monthly R1 then we had a nice bullish candle break out and close above R1. This was the confirmed buy signal (Buy1).
Stop loss is placed just below the previous candlesticks and the Profit target is the immediate next pivot level as we had discussed previously. In this case, the target is the R2 resistance zone (Target 1).
If have another strong bullish breakout to upside on Monthly R2, the n the target will be Monthly R3 (target 2)
Let’s take a look at the another break out example
This one was very clear and pretty simple to make profit out of. It was a GBPUSD, 4-Hour chart.
From our chart above, the price was trending upwards. Like we mentioned before, pivot break out trades perform best in trending markets. Let’s look at the chart first;
The first buy (Buy 1) was triggered by bullish candle close above the Monthly Pivot. The Stop loss is just below candle sticks and target is the immediate next pivot resistance (target 1) on Monthly R1. Note that, it similarly looks like that Buy 1 signal on Example 1 above with a small pause on pivot resistance before actual break out.
Buy 2 is a strong break out above Monthly R1. Stop loss is just below and profit target is the next immediate pivot level resistance zone, Monthly R2( Target 2)
Buy 3 is also a strong break out above Monthly R2. Stop loss is just below and profit target is the next immediate pivot level resistance zone, Monthly R3 ( Target 3)
How long you should hold an open position, is a personal thing for all traders. The decision is all yours. You know what your goals are as a trader, the kind of strategy you use to trade. All this starts from what you are? and What you want? If I am to answer, this...