The easiest way to use PivotPoint levels in Forex trading is to use them exactly like normal support and resistance levels.
Just like normal support and resistance, the price of these levels is repeatedly touched and tested .
The more a currency pair touches a pivot level and then returns from it, the stronger that level is .
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In fact, “pivot” literally means to reach a level of support or resistance and then return from it.
If you see that a pivot level is working, it could potentially bring in good trading opportunities.
- If the price is close to the high resistance level , you can sell on this pair and place a loss just above the resistance.
- If the price is approaching the support level, you can buy and put your loss limit just below this level.
You see? Just like normal support and resistance! Nothing difficult at all!
Example of a transaction based on Pivot Point
Let’s understand the story by reviewing an example. Below is a 15-minute GBP / USD chart.
How to use pivot points for range trades?
In the chart above, you can see that the price is testing the S1 support level. If you think this level will continue to work, what you can do is buy at the market price and then place a stop order after the next support level.
If you are conservative, you can set a huge loss just below S2. If the price reaches S2 and passes it, there is no possibility of going back and rising again, because S1 and S2 may become resistance levels.
If you are not conservative and are confident that support will be maintained in S1, you can set your loss limit just below S1.
In the case of profit points, you can set PP or R1 as the profit limit, which can also create some resistance. Let’s see what happens if you buy at market price.
How to use pivot points for range trades?
And his dish! S1 seems to have acted as support! In addition, if you set PP as your profit margin, you would beat your profit margin! Hooray! An ice cream and a pizza are your prize!
Important point in using pivot points
Of course, this is not always easy. You should not rely solely on pivot levels. You need to be careful to see if the pivot levels are in line with previous levels of support and resistance.
You can also combine candlestick analysis and analysis of various indicators to get more approval.
For example, if you see a doji candlestick forming on the S1, or a stochastic indicating an overselling situation, then the S1 will most likely act as a support.
Also, most of the time, trades are usually made between the support and resistance levels first.
Sometimes, the price tests the second level, and from time to time, the third level is tested.
Finally, you should be fully aware that sometimes the price easily crosses all levels. Like Lionel Messi dribbles in Barça home games.
What do you do in such a situation?
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