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An e-mail with your verification code has been sent to your e-mail address. Please access your in-box and use the verification button or verification code to complete your registration. You already have an account linked with this E-mail it maybe standard or social login. Please, sign in with it. Please, provide us your e-mail so we can verify your account. Keep me signed in. Forex School Menu Trading the Pivot Points There are major advantages when trading with support and resistance lines, and they should be a staple in every trader's arsenal.
Another effective method of deriving multiple, horizontal based support and resistance lines uses a formula derived from yesterday's high, low and close bar. The formula maps out pivot point levels consisting of the pivot, and three levels of support and resistance, and these levels can be traded much the same way as trading from the regular support and resistance levels and trendlines, using a mix of breakout and bounce trading strategies. The major advantage posited for this pivot point technique is that is "objective," in that so many traders are using the same levels based on the same formula.
There is no discretion involved. In contrast, the method of drawing support and resistance levels and trendlines can be more subjective and impressionist every trader can notice and draw different lines , even though there have been attempts by DeMark and others to make them more objective. A second related advantage of using them is that because so many people are looking at these levels they become self-fulfilling.
The reason pivot points are so popular is that they are predictive as opposed to lagging. You use the information of the previous day to calculate reversal points or breakout levels for the present trading day. Because so many traders including the large institutional traders follow pivot points, the market reacts at these levels, giving you an opportunity to trade them.
Just like we have seen with price action support and resistance levels, traders can choose to trade the bounce or the break of these levels. How are these levels calculated? Here is the magic formula: The three most common levels are the PP, R1 and S1.
If you hate algebra and the thought of working every day with a calculator and drawing tool to derive and plot these levels, you need not fear. The above formula is the just an explanation of the theory and not something you have to calculate each and every day. There are a number of ways to trade with these calculated pivot points, and we will discuss three of them: Trading the Bounce Reversal from Pivot If you have a good idea of the general direction of the market, you can take bounce trades off the Pivot Point in the direction of where the market was relative to PP at open of day.
Many traders see the Pivot Point as the major arbiter for determining if the market is up or down. If the market starts its day above the Pivot Point, it is said to be up bullish , and if it starts its day below, it is said to be down bearish. Signal Direction Condition Bullish. If price starts above PP, buy at or near the PP line with market or limit order.
If PP is missed, and market advances strongly up, there is an alternate trade in the long-biased PP direction: If market starts below the PP, sell at or near the PP line with market or limit order. If PP is missed, and market declines strongly down, there is an alternate trade in the short-biased PP direction: You would want the market to touch and retouch the line even waiting to see how far it breaks through , and take up a trade only when the market closes x pips above the PP level, suggesting that the line held firm.
You would want the market to touch and retouch the line even waiting to see how far it breaks through , and take up a trade only when the market closes x pips below the PP level, suggesting that the line held firm.
Alternatively, if you have missed the break, you can buy the retest of the break at PP level. If the break happens too fast and there is no retest, you can take up a long position at R1, so long as momentum is strong and it looks as if it is going to break as well. Alternatively, if you have missed the break, you can sell the possible retest of the break at PP level. If the break happens too fast and there is no retest, you can take up a short position at S1, so long as momentum is strong and it looks as if it is going to break as well.More...