Saturday, November 17, 2012

Reversed Pivot Top / Bottom

Pivots are a common pattern used in several trading systems. A pivot bottom shows that price has found a level of support. A pivot top on the other hand shows that price has found a level of resistance.
Let’s have a closer look.

The easiest way of trading pivots is assuming the support/resistance level they indicate will hold, and therefore the prices will reverse.
A common way of trading this would be to enter the trade at the close of the pivot confirmation candle (the third candle of the pivot pattern), with your stop at the pivot high/low.
Let’s have a look at the following EURUSD H1 Chart. It is an average Chart from last week, not cherry picked.

Every Green line represents a trade entry, stop loss would go at the pivot low/high indicated by the arrow. Depending on your money management, out of 15 trades, in the picture below at least 12 trades (I circled the arrows) would turn out to be winners. Not bad for 2 days worth of trading….

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