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Nonetheless, proper knowledge of pivot points will guide a forex trader on when to enter, exit, stop loss, and limit orders to maximize profits and reduce loss. There are several technical analysis tools and indicators used in trading, most of which are prone to human errors. Other trading tools such as Fibonacci may have a few limitations in that it has no inherent rules of objectivity. Commonly used technical analysis tools such as Parabolic SAR, Exponential Moving average EMA , Elliot waves, and others may generate some false forecast, and this makes it difficult to be objective in choosing which combinations of indicators to.
The pivot point is somewhat similar to Fibonacci levels.
However, there exists a significant difference between the two in that in Fibonacci. There is a level of subjectivity involved the trade would have to pick the swing highs and swing lows whereas, in pivot points, forex traders use the same method and formula for calculations. Pivot points are a critical tool for short-term traders seeking to take advantage of small price swings. As shown in the calculations above, by just knowing the previous days open, highs, lows, and close, you can eventually arrive at 7 points, i.
Pivot strategies: A handy tool for forex traders
Pivot points can be applied to forex trading in the same way other support and resistance tools are applied, the more a currency pair touches a pivot level, the stronger the level is. Pivoting simple means approaching a particular Support or Resistance level and the Reversing. The most important pivot points are R1, S1, and the actual pivot point. If the price is approaching the upper Resistance level, you could sell the pair and place a stop just above the resistance.
If a price is approaching a Support level, you could buy and put a stop just below the level.
Pivot point trading strategy
The logic is to put a focus on S1 or R1 for reversal or break such that as the market reaches R2, R3, or S2, S3, the market will already be overbought or oversold, and the right decision to take at these levels is to exit rather than entry. There are two main approaches to trade breakouts: the aggressive approach and the safe approach. Either of the two ways may be promising.
Note, however, that if you take the safe path, which means waiting for a retest of Resistance or Support, you may miss out on the initial move. If you were going long and price broke R1, you could place a stop just below R1. That gives us trading opportunities a year. That would mean winners a year and 90 losers of, about, equal Risk Reward. I am completely grateful to a Forex Useful member whose first name is Matthew.
He contacted me a couple of times with some questions about the strategy last week. I was amazed when I received this email from him a couple of days ago….
Using Pivot Points to Trade Potential Breakouts
I just wanted to share some back-testing results that I just finished off this morning. Sometimes it can be pretty skewed towards the risk. I completely disregarded news items. All trades not hitting stop or target were closed at NY close. I conducted these tests using Forex Tester so there is no slippage. Here is the equity curve provided by Matthew…. Some other statistics determined from the data provided by Matthew…. Out of trading days across 2 instruments opportunities Matthew had 82 trades.
Conclusion, we could assume an average Risk Reward. Matthew we are entirely grateful and we hope the free upgrade to Forex Useful Pro Membership in some way compensates you for your time and effort. We must first agree with Matthew regarding the back-test…. We hope this article is useful to and appreciate you sharing it with others.
We also welcome your comments below…. This update is based on my analysis on my charting package.
Why are More Traders Switching to FP Markets?
It may differ to yours as it can be affected by time, market movements, charting packages and broker prices. I accept no liability for loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on any information in this report or analysis. Pivot Trading is a very popular strategy but it is so poorly documented Not any more… You are about to find out why I had to do my analysis.
An independent back-test of that strategy. Read on… Trading Pivot Points There are loads of free pivot calculators out there. I too was in this position.