Pivot Point – How To Use It In Your Trading
The pivot point should be the first place where to look before opening a trade, since it is the first level you should look for support and resistance. Some of the biggest price movements occur at, or around pivot point levels.By using pivot points you will be able to determine whether to open a trade in the short or in the longer term, and to set the right profit target and stops.
Let’s see an example of how you can use pivot points: Say that the price moves toward the pivot point resistance level (S1), and closes below it. In that case you may decide to enter a SHORT position. The stop-loss you place should be above the pivot point and possible profit targets can be located at the first supportive pivot level (S1). However, you can play a longer game, trying to achieve higher returns. Once the price continues to fall below the S1 level instead of taking profits, you can move your existing stop-loss just above S1, and watch carefully. Typically, the second resistance level S2, will be waiting around the lowest point of the trading day and should be the ultimate goal of profit. A good trading idea is to close half of your position at the first pivot level. You let the other half run, with a trailing stop that will make sure it will be closed in the break even level at worst.
That way you guarantee the profits from the first position, and keep the possibility of making much higher profits with your second position.
A similar scenario is when the market is up trending. Once the price closes above the resistance pivot point, you can enter a LONG position. The stop-loss level will be set right below the pivot point, and the first and second resistance levels as earning targets.
Pivot Point Trading
The strength of support and resistance pivot at different levels is determined by the number of times the pivoting level was touched and the price bounces.The more times a currency pair or any other asset touches the pivot point and then return, the stronger the level is. When you recognize strong pivot levels you can use it. Once you see that a currency pair is trading higher close to a resistance level, you can sell the pair and place a tight and protective stops loss just above the resistance level. Your risk reward ratio for such a trade would be great. As in case of a break upward, beyond the pivot resistance your trade would be closed immediately. Then you can also consider to re-enter the market by entering a LONG position this time. Place your protective stop-loss just below the level that served as a resistance and now acts as a support level. On the other hand, if you price will stop and reverse you have much more to gain, while your targets will be located around the next supportive level.
I hope it was helpful, try to apply it on your demo account first. And remember that it’s always better to combine it levels with other tools. Consider the overall trend on different time frames, use an additional 1-2 indicators, and you can easily create a profitable trading strategy. If you have any feedback or questions please let me know, and I’ll see you soon!