Have you ever realized how best the indicator is? Have you ever noticed sometimes how precisely the price follows the indicator and not the other way, that is the reason it is called as leading indicator, is it not? and I have seen many amateur traders, they will not trust that indicator including me when I was started trading. If one learning from Forex training center, the tutor must have told and emphasized the importance of the indicator. It is the one way to develop trust in it, if not by experience. Otherwise the newbie may ignore it and if one is very unfortunate, one may not come to know till their end of the life. An investor Oddmund Grotte shares his experience like he said “I have been investing and trading for about 16 years, but not until now have I had a look at it.....I must admit I had basically no clue what this really is ” The indicator what I am talking is a very simple and well known PIVOT POINT (PP) LINES.
Who found it?
Prior to online trading and instant chart analysis like we do now, those days in the early 1970’s traders were fighting in the pit to hear their signals and acted upon it. The shouting and confusion in sending signal was overwhelming and remembering where the previous day’s session support and resistance level was quite difficult. It is the Chicago pit traders who come up with pivot point systems to help quickly forecast trends and likely support and resistance levels. Just imagine how effective the indicator, they were able to make trades in very ambiguous atmosphere!
Figure-1: The standard pivot floor formula
The easiest way to get the data values (High, low & close) is to flip into daily chart of the instrument you are trading.
Incredible price actions
The Movements frequently seems rambunctiously at best, and a complete conundrum the rest of the time. As long as there is proper liquidity and volatility in the market, the pivots will work on any chart, market, and timeframe. Even in the most intriguing market surroundings, these pivots illuminate the charts for your trading joy and profit! This is trader charm at its best.
If those price actions do not excite you, then you might not be impressed by the Taj Mahal in India, a miracle and symbol of Eternal Love.
Trend Trading Strategy by using Pivot Point Lines
“Buy at support in an uptrend and sell at resistance in a downtrend” ---F RANKLIN O. OCHOA, JR.
The strategy will be best suitable for a person who strongly believes in Pivot Point levels. And sufficient period of trading experience. Various trading research and innovative techniques have been trying from past decade. Best traders in the decade like Larry Williams, John person and later F R. O.Ochoa, have made great contribution to pivot point analysis.
Usually many intraday traders lose focus of trend through all the noise that comes along with trading. John person suggests using pivot filtering technique that means filtering all the levels except S1 & R2 and central pivot point when the market is in an uptrend, and in downtrend filtering all levels except R1 & S2 and pivot point. This method will force you to be disciplined to the trend. It will allow you playing the reversals opportunities in case of strong bearish or bullish momentum. If you remove all the levels below S1 you are forced to remain bullish looking for long opportunities at S1.Likewise removing all the levels above R1 will force you to think in the direction of bearish trend. In the case of true decline any level reaching R1 is just a noise, therefore if the market is trending lower you will look to sell at R1 or at PP level with target reaching S1 or S2. Similarly if the market is trending higher you will look to buy at S1 or PP with target reaching R1 or R2.
Let us take an analysis of 30min chart-1 of currency pair AUDUSD for the month of May 2012. The currency pair was got a bearish break out which triggered a nine-day rally. During the approach the currency pair was sometimes approaching R1 resistance level due to noise otherwise price was testing PP level and remain bearish for the entire trend. After all being in downtrend means lower highs and lower lows. In this case price is forming lower highs at PP or R1 level. It is the case of obvious bear mode.You should take a chance at these levels. And being in bear mode means you will be targeting new low or S1 or S2. Therefore if you sell pull backs within lower highs i.e. at R1 or PP level, your goal becomes reaching new low within the downtrend.
Chart-1: Strong bearish trend
Let us take an example of 30 min chart-2 of currency pair Eurusd for the month of October 2011 when its predominant trend is bullish. The trend continued for 6 days. During the advance price remained near PP or S1 support level, being in uptrend means forming higher lows and higher highs. In this case you should take a chance to buy at every pull back at S1 or PP level. And every trade taken should have target of reaching new high within the trend either at R1 or R2. As the market evidently trended higher during this stretch of time, notice how emphatic the reversals were at lows. Each test at PP or at S1 support guided to a significant wave of buying pressure, as responsive buyers clearly went to work at these levels.
Chart-2: Strong bullish trend.
Similar to above examples you can find lots of opportunities for intraday trading from different currency pairs. Look for the particular price setups and apply the above strategies, you will surely make lots of earnings depending on your risk appetite. I wish you all the best and lots of pips for attempting the explained strategies.