Pivot points provide good reference points at which to enter or exit trades as
well as give an indication of the market bias.
Simply get the High, Low, Close,
Open figures from the daily chart by checking the previous day's candle values
and enter them into the calculator.
You can then draw horizontal lines on your chart marking the Central Pivot
Point and then the other reference levels such as S1, S2, R1, R2 (S for
support, R for resistance).
When pivot point trading it is also a good idea to put the mid reference
points in also, M1, M2, M3, and M4 as price often will respect these levels.
The Indicators You Need For The Setup
It is good to have the 15 minute, 60 minute, and 4 hour charts displayed.
After marking the pivot point levels on your 15 minute chart, also show the
following on the three time frames:
-> The 200 EMA (Exponential Moving Average)
-> Do Fibonacci calculations on the most significant highs and lows on the
three time frames
->Mark significant previous support and resistance on the 60 minute and 4
hour charts with a horizontal line
Time Of Day
Look for this setup around two time periods:
- London Open (07:00 GMT)
- London Close (15:00 GMT)
The Asian session does not generally cause price to make new highs or lows.
Trading orders and flows build up after the open of the European session in
Frankfurt and take on new momentum once London opens an hour later.
Similarly, price action often slows considerably around the time of London
closing.
Look For This Setup At London Open
Check to see if price is anywhere near M4 or M3 on the upside or M1 or M2 on
the downside on your 15 minute chart.
Next consult your higher time frames, the 60 minute and 4 hour to see if any
of those M levels coincide with a Fibonacci retracement or extension level, or
the 200 EMA, or a previous support resistance line.
If you get a combination of those factors, there is a high probability price
will test the M levels and then reverse and go in the opposite direction for
the day.
Of course, nothing is guaranteed but the more factors you have coinciding at a
specific level around a pivot point, the more likely price will react at that
point.
Check to see where a 20-30 stop will put you and whether there are other
levels of support and resistance nearby to offer protection and start taking
profit as price approaches the other pivot levels either on the way up or on
the way down.
Remember, pivot point trading suggests that when price is around M4 or M3 you
are in a sell area and when price is around M1 or M2 you are in a buy area.
Look For This Setup At London Close
Now we come to the other end of the trading day which also lends itself to
pivot point trading.
Often price will have done its run for the day by the time of London close and
a retracement can be expected. However, you need to consider other factors.
Again check to see if price has reached a key level by the end of London
close. This level could be around a pivot point which also coincides with your
other indicators:
-
200 EMA
-
Fibonacci retracement extension levels
-
Previous strong support or resistance
Next check your Average True Range indicator for the last 5 or 10 days and see
what kind of range price has been moving in. This will vary according to the
currency pair. The EUR/USD cross for example often puts in between 76 and 100
pips per day.
Now check the range of the current day's trading. Has it equalled or exceeded
the average range for the last few days?
If so, and if price is at a strategic pivot point which also matches with
other indicators, you can enter a high probability trade and catch between 20
and 30 pips on the retracement.
These two pivot point trading strategies occur with surprising frequency a
number of times a month.
Practice these methods, get your eyes used to looking for the combination
factors surrounding pivot points, and trade with confidence.
Most definitely add pivot point trading to your list of trading strategies!
For a free pivot point calculator, Fibonacci calculator and the best free
economic calendars vitalstop. com/Forex/tools.
html . The powerful 200 EMA strategy - easy for newer traders vitalstop. com/Forex/Advisor/200EMA-
forex-strategy.
htm. Do you know the important lesson Mohammed Ali teaches us about
Forex trading? Read it here vitalstop.
com/Forex/Advisor/forex-
online-trading-mohammed-ali. htm
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