Small Pivot Point Range Trading 33 ITM

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Small Pivot Point Range Trading: 3/3 ITM

The benefits of having a tightly constricted set of pivot points is that the market may provide several areas of congestion. When they are close together, it may take only a few five-minute candlesticks before the next one is met. It really can make for an exciting and active trading session, as price tends to show a level of intraday sensitivity to pivot points, and trade set-ups can occur relatively frequently.

When the day was over, I basically had identified six main decision points in my trading from today and will address them in numerical order:

1. In this first market scenario, price breached resistance 1 and indolently sat on top of the level within a couple pips of it. As the general concept goes, old resistance can turn into new support, in the event that it’s broken (and vice versa). But in the three following candles after the break of resistance 1, the level continually held as can be seen in the image below, with a touch and rejection on each candle.

You can’t really consider it much of an uptrend here, as the market had barely moved thus far, as we were less than an hour into the start of the European session (typically taken as 2AM EST). The only uptrend-ish element we had was the break of resistance 1. But with three consecutive touch and rejections of resistance 1, I had the confidence to get into a touch of the level on the fourth consecutive re-touch on the 2:50 candle. It rejected as well, as did the next before getting a bit of a boost finally on the closing candle. This trade won by about three pips.

2. The next decision came right away, governing how to react with the resistance occuring at the resistance 2 level. It rejected on the 3:00 candle, sat below on the 3:05 before coming up to test again on the 3:10. Yet no put option trade was taken on this candle.

Firstly, the 3:00 candle represented a greater infiltration of volume into the market. Whenever there is an increase of volume into the market you need to be wary about technical-based set-ups. News time is the best illustration of this phenomenon. But it can happen in normal market scenarios as well when more traders enter the market at certain times of the day or seemingly randomly.

But the combination of the uptrending nature of the market (at least the arrow seemed to be pointing that way for the morning) and the extra volume told me that it was probably best to stay out of this one.

3. Following this, price meandered around the pivot–resistance 2 range. After that first trade, nothing cleanly set up for over two hours. Even so, I was more or less watching the chart the entire time given it could take very little time for something to set up properly.

The next possible set-up was at resistance 2 around 5AM EST. Price had touched just barely on the 4:55 candle and rejected the level. But given the breach of resistance 2 at around 3:15AM and the ongoing uptrending bias, I felt it would probably be best to sit out this opportunity. The previous break of resistance 2 was the leading factor in this decision, as price levels that are broken or not very well respected by the market necessarily hold less influence.

Just because a pivot point is there doesn’t mean that it’s important to find a way to trade it. Other factors outside of support and resistance will be the determining point (e.g., price action, trend, momentum/volatility). These price levels simply act as guides for potential trade targets.

A move up to resistance 3 seemed most likely just based on knowledge of the fact that resistance 2 had been surpassed previously and was clearly in a slow, but steady up-climb.

4. The move up toward resistance 3 did happen, and a favorable trade set-up occurred. Price went a few pips above the level on the 5:05 candle before wicking back down, followed by a doji right at resistance 3. This is pretty clear price action confirmation that a put option trade could be a pretty defendable decision.

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Yet with the ongoing uptrend, in addition the the fact that the buyers had pushed price above resistance 3 initially, it still wasn’t a super set-up. I wanted more evidence that this level could actually hold, either by:

a) more congestion along that level on the next candle (preferred), or
b) a retracement back down to resistance 2 or so to show that some selling force is present.

I list option A as preferred only by the fact that if it retraces back down there could be the chance that I miss a resistance 3 trading opportunity altogether and that a retracement would delay taking the put option should it continue to be available.

To make a long story short, I did get option B. After a re-touch of resistance 3 I took a put option and had a three-pip winner.

5. This scenario is similar to #3 explained above. The trend was up for the day and there was already a break in the resistance level I had targeted. But this one I felt more confident in for a couple reasons.

First, resistance 3 tends to be a more robust trading level than resistance 2, in my personal experience. It largely has to do with the fact that resistance 3 represents a greater deviation from the mean. While it does happen, it is rare that price finishes out of its pivot point range for the day even if the pivots are relatively close together. Second, the price action simply set up better here. On the 6:20 candle, a doji formed with minimal wick above the resistance level and a close about one pip below. Upon the re-touch, I got into another put option at resistance 3 and had a nice two-pip winner by expiration.

6. In this sixth and final main decision point, I was mainly looking to take trades at the high of day represented by the white horizontal line in the image below. Considering it was a net uptrend for the day, resistance 3 had already been tested multiple times (i.e., buying is relatively strong despite the low overall market volume), and price wicked above the level on the 7:15 candle, I was content to wait for a more conservative entry for further possible put options.

In this case, I decided on the general “high-of-day” level (quotations because I didn’t precisely identify it) – the top of the previous wick which represented the top of the candle bodies from the move made between 5:45-6:00.

A put option did not subsequently set up here, but I was very happy with the way today turned out at 3/3 ITM.

A 3/3 ITM Day

I started watched the EUR/USD from around 1AM-5AM EST and found nothing worth trading. The trade I really wanted was a put option at the touch of the 61.8% Fibonacci retracement level on the 2:45 candle. Unfortunately, it came 3/10th’s of a pip short of touching the Fib level, so I never took it. But it was a trade that would have won had it made it up to the price I had wanted.

I had also considered a trade on the open of the 4:10 candle (two to the left of the green candle with the long upper wick). Price had been randomly congesting in that area and although it was certainly a case of weak resistance, the price action (pinbar followed by a doji) seemed to suggest some type of imminent reversal. Ultimately I decided not to take the trade since it seemed too much of a lower-probability set-up, as there was no other factor working in my favor.

Before that, at 3:25 I was eyeing the pivot point (purple line – 1.30138) as a potential call option trade. I was considering taking the trade if there was a touch of the level and a close back above it – followed by a touch of 1.30138 on the following candle. But that never materialized either. Price subsequently touched the 1.30138 level on the 4:30 candle, but momentum was significantly downward. Moreover, there was a minor potential resistance zone created by the near touch of the pivot an hour earlier, which would have made it even more of a risky area to trade back into. Price simply looked like it wanted to head lower, which it did eventually, but I had no real idea of when.

I stopped watching the EUR/USD shortly thereafter, but sometimes I have issues taking my eyes off the market so I returned at around 6AM EST and immediately saw a potential trade setting up along my support 1 line (yellow line – 1.2967). Similar to the call option I had been considering at the pivot point hours earlier, I was waiting for a touch of the level, followed by a rejection of 1.2967 and a close above – with a call option taken on a subsequent touch of the level on the following candle. That’s essentially a “rule” that I’ve found to be a very reliable signal for me. It might limit one’s trades to an extent and require oneself to exercise a lot of patience, but I’ve found that the success rate is reasonably higher that way as opposed to simply taking trades on the touch of a level only. I like to wait for some degree of confirmation because sometimes price simply blows right through a S/R level.

Fast forward another hour-and-a-half, and I was still sitting on a tradeless day. There had been several potential trades that had just never set up exactly to my liking. Nonetheless, I found a put option worth taking on the open of the 7:50 candle. There had been an area of minor resistance just before 7AM and the price action was considering another reversal based on the pinbar that had formed on the 7:45 candle. Adding on to that, I had 1.3000, a major psychological price level, working in my favor just as I did in yesterday’s trade. As a result I had a high-probability set-up, so I took a put option on the open of the following candle and had a 12-pip winner at the end of the 8:00 expiry.

Price retraced back up with relatively strong momentum thereafter, but I began eyeing the pivot level as another potential trade opportunity (1.30138). Price had also congested around the pivot level from 4:30-5:00 so once again I had more than one factor working in my favor for that trade. Price finally got up to 1.30138 on the 8:30 candle. But again, I didn’t take it immediately on the touch of the level. I waited for price to touch, reject, close, and touch again on the following candle. Therefore I took the put option at 1.30138, which turned into a beautiful 13-pip winner.

The 1.29834 price level would have been an area for potential call options based on the line of support that was forming there. But I didn’t take any as price just seemed to have more of a downward bias at the moment. Instead, I was eyeing 1.2967 (support 1) for call option consideration. There was also support found in that vicinity based on price nearly reaching that area at around 6AM. Once price finally touched 1.2967, momentum was strongly downward given the 16-pip range on the 9:55 candle alone. But it was followed by a rejection, close above, and subsequent touch of 1.2967 on the 10:00 candle so I hopped on the call option. The trade actually went against me for the majority of the time. But in the final five minutes before expiry it made a final push back above my entry (eight pips) before it finally settled as nearly a 2-pip winner.

Needless to say, by this point I was dead tired considering I had been watching the market live for around eight hours so I stopped trading at this point. But having a 3/3 ITM day was certainly a nice way to end the week.

How to Trade with Pivot Points the Right Way

You need to learn how to trade with Pivot Points the right way. if you want to take full advantage of the power behind the pivot points. Trading with pivot points is the ultimate support and resistance strategy. It will take away the subjectivity involved with manually plotting support and resistance levels.

Our team at Trading Strategy Guides will outline why using pivot points is so important!

Pivot Points are derived based on the floor trading guys that used to trade the market in the trading pit. It’s important to know this fact to appreciate the value pivot points can bring to your trading. The way bankers trade is totally different. So you can also read bankers way of trading in the forex market.

Floor traders try to frame the day based on the previous day’s trade. They use a framework or a boundary to analyze the market. Because of this, pivot points are universal levels to trade off of.

Traders using the pivot point system will attempt to identify the movement of an asset’s price, and whether that movement is likely to continue or “pivot” in a different direction.

Pivoting usually occurs around areas of strong resistance or support. In order to calculate this, you will identify the opening price, high point, low point, and closing price from the most recent trading period. Pivot points are also called the floor pivot points!

Pivot point trading is also ideal for those who are involved in the forex trading industry. Due to their high trading volume, forex price movements are often much more predictable than those in the stock market or other industries.

The professional traders and the algorithms you see in the market use some sort of a pivot point strategy. In the old days, this was a secret trading strategy that floor traders used to day trade the market for quick profits.

Moving forward, we’re going to give you our introduction to pivot points and show you how to calculate the pivot points. Last but not least, give you a couple of examples of how to trade with pivot points. Also, read Personality Strengths and Weakness in Forex Trading.

What are Pivot Points?

Pivot Points are significant support and resistance levels that can be used to determine potential trades. The pivot points come as a technical analysis indicator calculated using a financial instrument’s high, low, and close value.

The pivot point’s parameters are usually taken from the previous day’s trading range. This means you’ll have to use the previous day’s range for today’s pivot points.

Or, last week’s range if you want to calculate weekly pivot points or, last month’s range for monthly pivot points and so on.

Pivot Points are automatically plotted on your chart so you won’t need to waste any time with calculating them. However, if you really want to have an intimate relationship with them, here is how to calculate pivot points:

Pivot Point (P) = (High + Low + Close)/3

The main pivot point (PP) is the central pivot based on which all other pivot levels are calculated. The math behind the central Pivot Points is quite simple. We add yesterday’s high, low and close and then divide that by 3, which is a simple average of the high, low and close.

And this is the math behind the support and resistance pivots:

Support 1 (S1) = (P x 2) – High

Support 2 (S2) = P – (High – Low)

Resistance 1 (R1) = (P x 2) – Low

Resistance 2 (R2) = P + (High – Low)

The third support and resistance levels are calculated as:

Resistance 3 (R3) = H + 2 * (PP – L)

Support 3 (S3) = L – 2 * (H – PP)

The central PP is just one of the main support/resistance levels. The pivot points indicator will also plot 10 more distinctive layers of support and resistance levels.

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. So, you don’t have to calculate these levels manually on your own.

Without further ado, let’s see how you can efficiently trade following the best pivot point strategy PDF.

Best Pivot Point Strategy PDF

Pivot Points are one of our favorite trade setups. We’re going to show you what the best method is to trade pivot points through our best pivot point strategy PDF.

The pivot point strategy doesn’t require significant trading capital. 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.

This is the wrong way to trade because you’re trading against the prevailing momentum which is one of the reasons why retail traders lose money.

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. For this article, we’re going to look at the sell side.

Step #1: Trade only at the London open or the 8:00 AM GMT

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.

We trade the London open because that’s the time big banks are opening for business, and the smart money operates in the market.

Note* We’re going to use the 15-minutes time frame and trade based off of the daily pivot points.

We’ve highlighted on the chart with a vertical line the London open as well as the beginning of a new trading day.

Step #2: Sell at the market if after the first 15-Minutes we’re trading below the Central Pivot Point

If after the first 15-minutes into the London trading session we’re trading below the central pivot point. 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.

If the price of any currency pair is trading below the central pivot point, then the bias for the day is bearish and we’re only looking for selling opportunities.

Important Note * If after the first 15-minutes into the London session we’re too close to the first support level we better skip this trade opportunity because the profit margin has tightened.

The next important thing we need to establish for our day trading strategy is where to place our protective stop loss.

Step #3: Hide your Protective Stop Loss 5-10 pips above the Central Pivot

It’s essential to have a good strategy for your stop loss as much as to have an entry strategy.

If the price breaks above the central pivot point then the sentiment has shifted on the bullish side and it’s wise to get out of any short trades. However, in order to accommodate any false breakouts, we also use a buffer of about 5-10 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.

Step #4: Take Partial Profit #1 at Support 1; Take Partial Profit #2 at Support 2.

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.

Note** the above was an example of a SELL trade using the best pivot point strategy PDF. Use the same rules for a BUY trade – but in reverse. In the figure below, you can see an actual BUY trade example.

Conclusion

You absolutely need to start using a pivot point strategy as a complementary tool to your support and resistance strategy if you’re not doing it already.

These pivot point trading secrets are very powerful price-based support and resistance levels.

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.

Thank you for reading!

Please leave a comment below if you have any questions on how to trade with pivot points!

Also, please give this strategy a 5 star if you enjoyed it!

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