10 tips for pivot point trading
This is the third post in my series on pivot points. If you missed either of the other two, or the free pivot-point calculator download, you can access them all on our website via the links below. Plus, don’t forget to sign up for the free Pivot Point Trader strategy.
Pivot Points Pt I: Free signal generator for day traders
Pivot Points Part II: Three simple pivot point strategies
When applied to a price chart, the five key pivot points will look something like this:
Last week we looked at three sound strategies that you can apply to pivot point trading.
Today I want to run through my ten top tips for getting the most out of these trading strategies …
Pivot Point Trading Guidelines
1. Pivot points are calculated from the previous day’s highs and lows. It’s easiest to pick this data off a daily chart, but when you come to plot and use your pivot points, you’ll need a shorter timescale that’s suitable for intraday trading (5, 10 or 15 minute charts, for example).
2. Note where the market opens. Normally it opens relatively close to the central pivot point. If it’s above the central pivot point, it’s considered a bullish sign, and we should be looking for buying opportunities. If it’s below the central level, it’s considered bearish, and we should be looking for selling opportunities.
3. If the market opens above R1 or below S1, this is considered a distant opening, and it is likely that the price will correct itself, pulling back towards the central pivot point. Trading this kind of set up is more difficult, and I wouldn’t recommend it for pivot-point novices.
4. The price has a natural affinity to the central pivot point. If there is no news affecting the market price, it is likely to trade for the day between the pivot point and S1 or R1. However, significant news can cause the price to move through S1 or R1, to S2 or R2, or even beyond to the very volatile areas of S3 or R3.
5. Don’t enter a trade until the price has clearly broken through or rebounded from one of the pivot points. How you decide on what constitutes a rebound or a breakout will depend on your strategy (how many pips you’re trying to make, what timeframe you’re working to, etc). Whatever your criteria, be careful not to anticipate this move as there can be a lot of congestion around the pivot points. Waiting for a second candlestick is a common method of confirming the signal.
6. When the movement is confirmed, we enter our trade, with the next level as our profit target, and our stop loss positioned at a safe distance behind the breached level.
Here’s an example from Eur/USD:
7. You’ll notice that I didn’t enter another Sell trade at S2. The reason for this is that S2 and R2 are considered the daily “floor” and “ceiling” – i.e. we don’t expect the price to move beyond them. That’s not to say that they can’t be breached, especially in a strongly trending market, but the tendency of the price is to move back towards the central pivot point, so this is not a good area to be trading in. The general rule is: the further the price moves away from the central pivot point, the weaker the trading opportunity.
8. Mid-lines are the halfway levels between your 5 pivot points. The calculations for these can be found on the Pivot Point Calculator, along with R3 and S3. These are not strong areas of support or resistance, but can be useful extra guidelines for setting stop loss levels.
9. When trading pivot points, be mindful of the medium-term market behaviour. In a sideways market, the price will often fluctuate neatly between PP and R1 or S1. In a strongly trending market, we can expect to see pivot points breached more readily. As traders, we can take advantage of both of these scenarios, with channel trades and breakout trades (see last week’s posting).
10. Pivot point traders always try to catch the market when it is close to the pivot point early in the day – this should offer the highest success rates.
That’s it for pivot point trading!
I’d be interested to hear about any successful trading strategies or ideas that you’ve come across with pivot points. Comments please …
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35 comments
Zeeshan Ahmed
Hi Mark,
This was really indeed an useful article, but some time it is observed that market gives us a clear bounce back from pivot as an entry point for trade, and soon after few hours it breakout the pivot and hit SL. Is there any way to predict that breakout before time??
Mark Rose
Thanks for your comment. Judging whether the price is breaking out at a key level or bouncing from it is never going to be a perfect science, but there are techniques that can help us. Namely, only trading on a pullback – yes, this means you’ll miss some signals, but should only get in on the stronger, more reliable ones. You can find more info on this here: https://www.tradersbulletin.co.uk/whiplash-trade/
Looking at price action candles is also a good way to judge market sentiment around key levels. Just stick to the most basic patterns: dojis & engulfing – https://www.tradersbulletin.co.uk/three-candlestick-patterns-every-trader-should-know/
I hope this helps
Dave
Have you tried Camarilla pivots? They are magical… I combine Camarilla H3 H4 L3 L4 with your traditional ones and it’s quite accurate with US stocks
Mark Rose
Hi Dave, no, I’ve never used them, but if they’re as good as you say, I should give them a look. Any advice on best ways to have success with them? Cheers, Mark
Mark Tyrer
Thanks Mark,
This article is both clear and concise. I will look forward to more posts
Mark Rose
Thanks for the feedback Mark, and thanks for signing up for the newsletter – lots of great trade ideas coming up …
prasad
Thank u so much for explaining i learn lot of from your article,,
Mark Rose
Hi Prasad, Thanks for the feedback – good luck with your pivot point trading
Felix
Mark, read somewhere that we use daily pivots for lower TF such as less than 1hr, then weekly pivots for more than 1hr & finally monthly pivots for daily charts. Can confirm is this correct?
Also, some pivot calculator include filling in the opening price, ie. H,L,O,C – is opening necessary? Thanks.
Kim Jong 3
Hi,
Amazing post and amazing insights! However, I would like to have a bit more insight on this.
However, I would like to understand more on the time frame part, as in which time frame is to be selected : 1h/4h
Mark Rose
Hi Kim, I’m glad you found this helpful. When you’re looking at timeframes, bear in mind that pivot point trading is intra-day, so you’ll need to be looking for patterns that will develop in the relatively short term. One-hour and 4-hour charts are too slow for this kind of trading – I’d recommend using 10 or 15 minute charts.
jong
hi mark,
for pivot points the time zone shu be GMT0 but my broker is using GMT3 so does it affect anything? the autopivot generates the pivots following the broker’s time zone then it will have an offset of 3 right? is it alright to have offset of 3 or shu we adjust? for example today if i use GMT0 without adjusting the shift hour the pivot will be 1.3210. if i put a shift hour of -3 coz our broker is GMT3 right? then the pivot will be 1.3208. the pivot has no much difference but when it comes to S1 and R1 it makes quite a big difference. R1 without adjusting the shift hour is 1.32451 after adjusting the shift hour is 1.32390. when newyork is trading alone we shu use GMT4 instead of GMT0 right?
Mark Rose
Hi Jong, Yes, calculating pivots on GMT+3 will give different results. The rule of thumb would be to run them on GMT0 (the London forex window is a crucial trading time), however, if you’re trading different markets and in a different timezone, you may take a view that this isn’t the best option for you. If you let us know what you’re trading and at what times, perhaps someone on the forum has experience of the best pivot times to use.
jong
thanks for the reply mark. I normally trade the major pairs like euro/usd, gbp/usd and usd/jpy and i trade during london and newyork session. I’m living in a country with GMT+8 but my broker is using server of GMT+3. However some pivots indicators allow u to adjust the time zone and shift hour so lets say i put the shift hour as -3 then it should be same as pivots in GMT0 am i correct?
Lance Descroizilles
Hi Mark,
Great articles here, thanks very much. I understand the calculation to work out the pivot points and I have created a template in Excel that does all this for me. All I need to key in is the H,L and C for the previous day. I find them very useful in my trading. Particularly on the yen crosses.
Having calculated them, I like to check to ensure that they are correct. The only website I know that performs these calcs is actionforex.com. Often we have discrepancies which relate to the value of the H,L or close used in the calc.
Do you know of any website or other source I can use to ensure that my pivot point calcs for the day, or for the week, align to those being used by the rest of the trading world?
Thanks
Lance
Mark Rose
Hi Lance, Thanks for your message. The problem you’ve run into is that different traders will use different close times to calculate their pivots points. Close time in the US will be different to London, or Frankfurt. I’m afraid I haven’t done enough research to give you advice on which would be best for trading Yen crosses. My advice in general is to stick to one timezone, and avoid chopping and changing. For calculating pivot points, there’s the free pivot point calculator that you can download from our members area. Or, if you check out forexticket.co.uk, I notice that they have a pivot point calculator that allows you to select different timezones, which might be useful for you.
Chris
Hi Mark,
Fantastic set of articles with great strategy information on how to trade the entries.
I am researching pivots and there are many theories around the subject.
Interesting point about bias, wether it be the asian first candle or the first candle of your trading session. I will have to test this in more detail.
Also I have heard about the previous day making 4 pivots in one direction without a retrace will probably make at least a 2 pivot retrace on the subsequent days trading. The 4 up 2 down : 2 down 4 up rule. Have you heard about this?
I am looking into confirmation rules for entring the breakout. But I think that your channel example is a great way of attempting to get into the market at lower timeframes with obviously tighter stops.
I notice that stop hunting at the M pivots is common especially around the daily PP levels. I assume this is because of the amount of entries which only focus on the daily PP in direction of bias.
Hope thats not too much of a comment and look forward to reading more of your insights.
HG
Hi there! This is my first comment here so I just wanted
to give a quick shout out and say I really enjoy reading your blog posts.
Can you suggest any other blogs/websites/forums
that cover the same topics? Thanks a ton!
John
Mark, came here looking for pivot point resources to fine tune my system. I just got started trading with pivot points a few days ago. So far i noticed that my trades had an 80%+ accuracy. I use pivot points with moving averages and i trade in the direction of the daily trend.
A question though!!!!!
You said if the first candle opens above or below the pivot point.. When you say market open which market are you referring to? The us or london or asian session?
My pivots are drawn on us open and close prices.. S the first candle during asian open session is what will set the bullish or bearish outlook?
Mark Rose
Hi John, It’s great to hear that you’re having such success with pivot points. And it’s a really good question! Strictly speaking, if you’re using pivot points on the US session, then it’s the first candle of THAT session that gives you the bullish/bearish outlook. However, that’s not to say that the open of the Asian session above/below the central pivot point for a major session isn’t going to give you any kind of bullish/bearish indication. I hope that helps. And please let me know how you get on …
shyam
Sir,
I am very much excited with your articles on pivots.
I am a just beginner day trader.
Should I make pivot level trading as my permanent trading strategy alongwith trend, price patterns at or around pivot levels.
Kindly advise.
Thanks
Micahel
Hi Mark!Havn’t got your reply. Don’t worry, I can pay for your help.
Michael
Based on what criteria was the stop loss made? Thank you mark
Mark Rose
Hi Michael, I’m not sure that I’ve understood your query – could you explain which stop loss you’re referring to? In general, the stop loss needs to be tucked away on the other side of the pivot point that has been breached or bounced off. To give the trade more breathing room, beyond the next mid-point would be safer, but it really depends on the risk-reward you’re working on. I hope that helps.
Micahel
Thank you very much for your reply. I am sorry I lost your website (I thought if you reply, I could get a notice by email). I got your point, thanks. Do you trade crude oil?
Mark Rose
Hi Michael – I’m glad you’ve found us again! Funny you should ask about crude – I’ve been thinking a fair bit about trading oil recently. However, in recent years, I’ve really discovered the joys of “cheap” trading – i.e. sticking to instruments with very low spreads. It makes winning much easier when you’re day trading and those few points really make all the difference. However, I’ll let members know if I have any luck with crude (are you signed up to the newsletter?) Mark
Micahel
Hi Mark! Thank you for your prompt reply. Low spreads? You trade forex futures? I subscribed to the newsletter, waiting for confirmation.
Good trading
John Taylor
The last issue I received was dated 26 August which means that I am out of date for Martin Carter’s password. Please could I be reinstated. Thanks in anticipation. John Taylor
Mark Rose
Am looking into this John – will email you directly.
Ravi
Thanks Mark, This is really an awesome guide to beginners.
Joana
The last issue I reiceved was dated 26 August which means that I am out of date for Martin Carter’s password. Please could I be reinstated. Thanks in anticipation. John Taylor
Mark Rose
Hi John, Sorry to hear that your emails aren’t arriving as they should. I’ve just emailed you this month’s password – I hope that arrives okay. Please can you drop me a line to confirm your current address. Thanks, Mark
Gail Crabb
My only comment is ” how I wish that we had had these pivot points before!” Am just amazed at how accurate they are. Have only placed one small trade on cable ( an order outside a congestion area) and immediately took profits at a resistance. Otherwise I am just observing and learning, also appreciated having the strategy posted in small chuncks enabling to digest slowly.
Thankyou for intrducing me to “your” method of finding pivots
Gail
hemanth
hi sir .
is this strategy work on indian stocks please tell me how
Mark Rose
Hi Gail, Really pleased to hear that the pivot points are helping you. Mark