Pivot Point Trading Strategy:

Two Specific Setups To Watch For

Pivot point trading can greatly simplify Forex day trading.
Pivot points provide good reference points at which to enter or exit trades as well as give an
indication of the market bias.
You can either go online and download a pivot point calculator or use the free one
referenced in the resource box below.
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 (700 GMT)

London Close (1500 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 equaled 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!

Pivot Point Trading: 7 Guidelines For Success

What do we mean by pivot point trading?
It simply means that Forex traders take into account pivot points calculated from the
previous day's trading range and use them as reference points to identify support and
resistance levels.
Taking the high, low, close and open values of the previous day's price action, strategic
levels can be identified which may or may not have an influence on price action. Pivot point
trading puts emphasis on these levels, and uses them to guide entry and exit points for
trades.
However, as with any technical indicator, there are limitations and pivot point trading, to be
high probability, needs to stay within certain parameters. The following 7 guidelines can
help pivot point trading be more profitable:

No. 1
Pivot points should not be used as a standalone indicator. Do not enter or exit trades purely
on the basis of pivot points. Use them in conjunction with other indicators such as candle
patterns, Fibonacci levels, MACD, and moving averages to identify and confirm key levels of
support and resistance which may provide trading opportunities.
No. 2
While some traders living in various parts of the world may calculate their pivot points
according to the time zone in which they live, a fairly safe standard for calculating the levels
of pivot point trading is to use GMT (Greenwich Meantime).
Midnight GMT is a very quiet time in the market with very little volatility and provides a
good opportunity to calculate more accurate pivot levels going from midnight GMT to
midnight GMT the following day.
No. 3

It is good to understand what is going on behind the scenes when it comes to pivot point
trading. Rather than just staring at candles on a chart, understand what they actually
represent.
Thousands of traders around the world, some working for large institutions and handling
millions or even billions of dollars worth of currency, are taking positions according to
previously established highs and lows in the market.
Pivot points draw attention to these key levels which will often be strongly defended by
traders who have a lot at stake. This is the reason pivot point trading can be so successful,
once a trader understands underlying reasons for price action.
No. 4
It is good to calculate mid levels in addition to the S1, S2, R1, and R2 pivot levels.
Sometimes there is a significant gap between these levels and calculating a mid point gives
another point of reference. Price will often be seen respecting M1, M2, M3, or M4.
To calculate mid levels, simply subtract the level below from the level above and divide by
2. (see the resource box for a free pivot point calculator)
No. 5
Pivot point trading can be a useful strategy for entering and exiting trades at the right time.
A pivot point can provide a key level of support or resistance where price is likely to bounce
for a 10-20 pip profit.
Or in the case of a trend, price may retrace to a pivot level before continuing its run. The
retracement point at the pivot level would be a good place to put an entry order to be taken
in when price comes back to retest at the pivot level.
No. 6
The Euro - US dollar pair often puts in a daily average of between 75 and 100 pips. Watch
for specific behavior around the time of the London market open. Price will often come back
to test a level which is a pivot point and form a distinctive candle pattern such as tweezers,
or a hanging man, and then reverse and go on its 75-100 pip run for the day.
If price comes back to the M1 level check your other indicators to see if they confirm this
would be a good level to go long. Likewise, if price, just around London open, tests the M4
level, check your other indicators to see if this would be a good place to go short. You may
be able to get a slice of the 75-100 pip run for the day.
No. 7
Pivot point trading helps mentally in establishing the buy zone and the sell zone.
Traditionally, anything above the Central Pivot Point is a Sell area, and everything below the
Central Pivot Point is a Buy area.
If you go contrary to that, make sure you double check your analysis and have very good
reasons for doing otherwise.

Pivot point trading is just one of an arsenal of weapons available to Forex market
participants. However, it must be stated that many successful traders use just a handful of
tools that become their favorites. After all, too many indicators can lead to decision
paralysis.
For many traders, pivot points are a key element in their overall trading strategy. Use the 7
guidelines above to use them safely and responsibly.

Forex Day Trading:

Top 7 Checklist When Using Support And
Resistance
Why are support and resistance levels crucial when participating in the Forex day
trading market?
Simply put, they represent key, strategic price points at which traders processed orders
involving millions or even billions of dollars. No wonder price at times has a hard time
getting past a previous high or low.
Those levels are being fiercely defended by traders who have large amounts of money at
stake and who do not want to see price break those levels.
For this reason anyone who engages in Forex day trading should learn how to trade support
and resistance.
The following checklist provides crucial guidelines:
1. Support and resistance levels are much more significant on the higher time frames. Pay
particular attention to price highs and lows on the daily chart as this time frame is
commonly used by big traders.

2. A price high or low has more significance when it has a number of candles either side of
it which are lower (in the case of a price high) or higher (in the case of a price low).
3. Before you consider Forex day trading at a support or resistance level, see if there are
more factors that would indicate this is a key price level.
For example, does a trendline intersect at the same point? Does the support or resistance
line match up with a Fibonacci level, either a retracement or an extension? Does the support
or resistance level coincide with a pivot point if you are in the practice (and it's a wise one)
of calculating pivot levels when Forex day trading?

4. Has a key support resistance level been broken? Then look to see if price will come back
to test that level. Remember, resistance once broken can become support in the future and
support once broken can become resistance in the future.
These Forex day trading scenarios can present excellent trading opportunities as you put an
entry order in at the key level and wait for price to come back and pull you in. Within a
short time your dealing spread is covered and you are in profit.
5. The market spends most of its time in trading ranges or consolidation channels. You need
to accept that this is a characteristic of Forex day trading and adjust your mindset
accordingly. Identify the high and low of the trading channel and manage your trades
accordingly.
6. After identifying a trading channel or range and you see a trading opportunity, set your
entry level at the base of the channel if you are going long or at the top of the channel if
you are going short.
Don't chase after price once it breaks out of the channel (although many who engage in
Forex day trading do so). You will not get the optimal entry point. Waiting for price to take
you in either at the top or bottom of the channel means you can have a smaller stop and
your price target is closer.
7. Pay particular attention to the previous day's high and low. Price will often hesitate and
retrace at these levels. If you are a Forex day trading scalper, you can often grab a nice pull
back of 10 pips or more at these strategic levels.
Note: Although there are various ways to calculate the previous 24 hour period depending
on where you live, using GMT as a standard is often beneficial. Midnight GMT is a time when
the market is generally very quiet and unlikely to make new highs or lows.
Succeed Or Fail?
It is unlikely you will succeed at Forex day trading if you fail to understand or take into
consideration support and resistance. This indicator is that crucial! Yes there may be fancy
indicators out there with all the bells and whistles, but this simple indicator, marking where
price reached a high or low during previous trading sessions, can be one of the most
powerful and effective Forex day trading tools available.
Be sure you spend sufficient time studying it, examining your charts, marking off the key
levels each time you begin a new Forex day trading session.

Forex Trading Education:

The 7 Point Checklist For Using Trendlines
Forex trading education naturally falls into two parts:

First the easy part, learning technical indicators, how to use a trading platform, the
terminology, etc.
Secondly Forex trading education must include information on the mindset of a successful
trader and the disciplines that need to be learned in order to handle the emotional and
mental demands of trading in the market place.
Here we provide a list of 7 guidelines for using trendlines as part of your Forex trading
education using technical indicators.

Trendlines may be regarded by some as one of the weaker indicators although still valuable.
They can be powerful when used in combination with other factors. That's why an effective
Forex trading education doesn't rest on a single magic formula but rather involves an
investment of time and energy as the new trader learns to combine the input from a
number of tools to reach a clear decision.
When using trendlines to identify an optimum entry point for a high probability trade keep
the following points in mind:
1. Trendlines on lower time frames such as 5 minute, 15 minute, or 30 minute, do not have
much significance by themselves. Take more note of price reaction around trendlines on the
higher time frames, specifically the 60 minute, 4 hour, and daily chart.
2. Trendlines on a daily chart carry a high significance as this is the chart many traders of
large institutions use. They do not participate in intra day trading but rather look for
position trades as they commit large sums of money to a transaction. The daily chart is
often their point of reference.
3. Draw general trendlines across the significant lows in an uptrend or the significant highs
in a downtrend and use them as a point of reference to show where support or resistance is
likely to be found.
4. If you want to get more specific, use the Tom DeMark method of drawing trendlines. This
technical advisor recommends using the current swing high or swing low, depending on the
trend, and then connecting that to the previous swing high or low (to the left on a
candlestick chart). The line is then extended out into the future. These trendlines can be
constantly updated as new highs and lows are reached.
5. For trendlines to be effective indicators, they must be used in conjunction with other
technical indicators. So if a trendline is crossed by a support/resistance line, or a pivot
point, or a Fibonacci retracement or extension level, you now have a combination of factors
indicating this could be a suitable entry point.
6. Add these two trendline methods to your Forex trading education:

When price has an upward or downward momentum (as opposed to moving within a
consolidation channel), look for times when price will come back to bounce the
trendline before resuming the momentum.

When price breaks a trendline, rather than enter a trade at that point, choose a more
optimal entry point by waiting for price to return and test the back side of the
trendline that has just been broken. This will not always happen and you risk missing
being taken in. That's trading! But more often than not this will happen and you get
an excellent entry point.

7. Do not use trendline breaks or bounces as an entry signal by themselves. They do not
provide a strong enough signal. If you add this crucial piece of information to your Forex
trading education you will minimize the number of trades you regret entering.
As part of your Forex trading education, use your demo account to experiment using
trendlines.
Remember they have limitations. In themselves they can give a false signal. Used in
combination with other technical indicators however, they form a more complete picture,
giving you a clearly defined graphical representation of where price is and where it is likely
to go.
Keeping the seven point checklist above in mind should help keep you out of troublesome
trades when using trendlines!