Pivot Points Trading Strategy - forexuseful.com

Pivot Points

Trading Strategy

“A Simple To Apply Intraday Strategy”

By

Jon McFarlane

“Are you interested in intraday trading? This Pivot Points Trading

Strategy is based on statistical analysis over 12 years of data, across 3

popular currency pairs. The result is a simple to apply intraday strategy

any trader can use.”

Available exclusively at

Pivot Points Trading Strategy

Page 2

Table Of Contents

Table Of Contents ..................................................................................... 2

What Are Pivot Points ............................................................................... 3

Adding Pivot Point Levels To Your Charts ................................................ 4

The Analysis .............................................................................................. 6

The Analysis Statistics .............................................................................. 7

Potential Trade Idea 1 ............................................................................... 8

Potential Trade Idea 2 ............................................................................. 10

The Trading Plan ..................................................................................... 12

Strategy Expectations ............................................................................. 17

Frequently Asked Questions ................................................................... 18

Add-Ons .................................................................................................. 19

Legal Obligation & Risk Disclosure Statement ....................................... 20


Page 3

What Are Pivot Points

Firstly, welcome to the Pivot Points Trading Strategy.

Because you are reading this you probably already know what Pivot

Points are but it would be at least a little strange not to clarify.

Pivot Points encompass...

A Pivot Point (PP)

3 associated levels of Support (S1, S2, S3)

3 associated levels of Resistance (R1, R2, R3)

All levels are calculated from the previous day’s High, Low, Close (HLC)

prices. All levels are considered key areas where price may find

Support and/or Resistance.

These technical levels are observed and used by many traders all over

the world. This includes influential institutional and “floor” traders.

Although home traders know about these important levels, many do not

know enough about them or how to really use them.


Page 4

Adding Pivot Point Levels To Your Charts

You can of course manually calculate Pivot Points each day using the

formula above. There are also spreadsheets and websites to make the

process easier.

But the easiest option, if you are using the Meta Trader 4 (MT4) trading

platform, is to use an indicator.

Forex Useful offers 2 options...

The Forex Useful MT4 Day Trader Indicator

The Forex Useful MT4 Day Trader Indicator allows you to display all

pivot levels. It can also display much more information such as, open,

high, low, big round numbers, session times, etc.

The indicator, included in our FREE membership is available here.

http://forexuseful.com/new/members/21812-mt4-day-trader-indicator/


Page 5

The Pivots Strategy MT4 Indicator

Another option is the Pivots Strategy MT4 Indicator which also

displays all pivot levels.

The indicator also shows the current trade setup related to this strategy

including Direction, Entry, Stop, Target and applicable spreads. Allows

you to, should you wish, place Set & Forget orders for the day ahead.

Additionally, the indicator alerts you when an actual Entry is triggered

(R2 or S2 is hit). Appropriate for those who are at their screen and wish

to make their trading decisions based on current market conditions.

Alerts can be visible or audible (see image). They can also be sent

via email or SMS, usually at no additional charge.

The Pivots Strategy MT4 Indicator is included in the Forex Useful MT4

Indicator Bundle available here. The bundle also includes the 3 Little

Pigs and PAST MT4 indicators.

http://forexuseful.com/new/members/21812-mt4-indicator-bundle/


Page 6

The Analysis

There are few, if any, Pivot Points Trading Strategies based on real

analysis. This means that it is difficult to determine whether or not to

use them and if so, how to use them.

I knew I had to do my own analysis...

The analysis was based on 3 popular Currency pairs I regularly

trade, EURUSD, GBPUSD and EURJPY.

The analysis was conducted over 12 years of data and focused on

Daily Pivot data only.


Page 7

The Analysis Statistics

EURUSD GBPUSD EURJPY AVERAGE

Price will hit the PP 77% 76% 77% 77%

Price will hit either R1 or S1 75% 76% 77% 76%

Price will hit R1 & S1 11% 11% 9% 10%


Price will hit R2 & S2 1% 1% 1% 1%


Price will hit R3 & S3 <1% <1% <1% <1%

Price will close inside R1 & S1 56% 57% 57% 57%



Analysis Observations – Hit

The data is relatively consistent across all Currency pairs

The probability that price will hit the Pivot Point is 77%

The probability that price will hit either R1 or S1 is 76%



Analysis Observations – Close Inside

Again, the data is relatively consistent across all Currency pairs

The probability that price will close inside R1 & S1 is 57%




Page 8

Potential Trade Idea 1

We know that...




Our Trade idea is...

Enter at R2 / S2, Target R1 / S1, Stop at R3 / S3

For example, for a Long trade...

However...

On further investigation, it was identified that if price hits either R2 or

S2...

The probability that price will close inside R1 & S1 drops by over

half

So instead of being a 57% probability it is actually just 28%.

This means our potential strike rate decreases from 79% (57% versus

12%) to 57% (28% versus 12%).


Page 9

The Risk Reward...

Our Trade idea, which now has a 57% strike rate, is...


Having also analysed the difference between R1 / R2 / R3 and S1 / S2 /

S3 respectively it was confirmed that the difference between the Risk

and Reward varied from between, circa, 0.8 – 1.2 Risk for a 0.8 and 1.2

Reward.

This analysis was essential because the distance between, for example,

R1 & R2 and R2 & R3 is not always equal.

In addition to this we had to incorporate the fact we would also, as will

be seen later, be giving up a little more Risk Reward due to spread.

Conclusion, we could assume an average 1:1 Risk Reward.

Our Trade idea...


Has a potential strike rate of 57% and an average Risk Reward of 1:1.

A valid trade idea!

Note: There will of course be trades where neither the Target or the

Stop is hit. We may not (close inside) hit R1 / S1 or hit R3 / S3. It has

been assumed that where this is the case we will close the position at

the end of each day and, over time, have an overall break-even position.


Page 10

Potential Trade Idea 2

We know that...



Our Trade idea is...

Enter at R3 / S3, Target R2 / S2, Stop at Equal Risk Reward

For example, for a Long trade...

However...

On further investigation, it was identified that if price hits either R3 or

S3...

The probability that price will close inside (hit) R2 & S2 drops

drastically

So instead of being an 82% probability it is actually just 35%.

This means our potential strike rate of course also decreases drastically

from 82% to 35%.


Page 11

The Risk Reward...

Our Trade idea, which now has a 35% strike rate, is...


We have no basis for our Stop (there is no R4 / S4 for us to analyse).

We have to use something and Equal Risk Reward seems reasonable.

Our Trade idea...


Has a potential strike rate of 35% and a Risk Reward of 1:1.

An invalid trade idea!

Note: Even if we were to consider using a Stop (Risk) of half of the

Reward this would at best be a marginal valid trade idea.


Page 12

The Trading Plan

IMPORTANT INFORMATION

This Trading Plan and in fact the rest of this strategy is based on

The assumption you are using Bid price charts

(Which is the norm these days for the majority of all charting packages)

If you are unsure if your charts are Bid price charts

Please check with your broker


Page 13

Based on Potential Trade Idea 1...

Long Trade

Entry at S2 + Spread

Stop at S3

Target at S1

Note:

Spread is added to the Entry because we are using Bid price charts.

This means when we Buy, to enter this trade, we must make

accommodation for what we actually see on the chart. When we Sell (to

exit the trade) we do not have to make such compensation.

Make sure to trade only Currency pairs with a low spread (3 or less).

This ensures, as best possible, the spread has little or no impact on

overall results.


Page 14

Again, based on Potential Trade Idea 1...

Short Trade

Entry at R2

Stop at R3 + Spread

Target at R1 + Spread

Note:

Spread is added to the Stop and Target because we are using Bid price

charts. This means when we Buy, to exit this trade, we must make

accommodation for what we actually see on the chart. When we Sell (to

enter the trade) we do not have to make such compensation.

Again, make sure to trade only Currency pairs with a low spread (3 or

less). This ensures, as best possible, the spread has little or no impact

on overall results.


Page 15

The Pivots Strategy MT4 Indicator included in the Forex Useful MT4

Indicator Bundle (which also includes the 3 Little Pigs and PAST MT4

indicators)...

Shows the current trade setup related to this strategy including

Direction, Entry, Stop, Target and applicable spreads. Allows

you to, should you wish, place Set & Forget orders for the day

ahead.

Also alerts you when an actual Entry is triggered (R2 or S2 is hit).

Appropriate for those who are at their screen and wish to make

their trading decisions based on current market conditions.

Alerts can be visible or audible. They can also be sent via email or

SMS, usually at no additional charge.

These are the valid “Direction” status for the indicator...

If Bid >= R3 – Short Stop Hit

If Bid >= R2 and Bid < R3 – Valid Short Trade

If Bid >= R1 and Bid < R2 – Imminent Short Trade

If Bid > PP and Bid < R1 – Potential Short Trade

If Bid < PP and Bid > S1 – Potential Long Trade

If Bid <= S1 and Bid > S2 – Imminent Long Trade

If Bid <= S2 and Bid > S3 – Valid Long Trade

If Bid <= S3 – Long Stop Hit

The visible, audible, email and SMS alerts are triggered when the

“Valid Short Trade” or “Valid Long Trade” condition is met.




Page 16

Here’s the Pivots Strategy MT4 Indicator in action, demonstrating a

“Valid Short Trade”...


Page 17

Strategy Expectations

Overview

The analysis was only performed on EURUSD, GBPUSD and EURJPY.

However, the data was so consistent this strategy could probably also

be applied to other Currency pairs.

The strategy has an expected 57% strike rate with an average Risk

Reward of 1:1.

The assumption has been made that manually closed trades not hitting

the Stop or Target will result in an overall break-even position.

An additional assumption has been made that only Currency pairs with a

low spread (3 or less) are used to ensure spread has little or no impact

on results.

Realistic Potential

Let’s take the 3 instruments upon which the analysis was performed,

EURUSD, GBPUSD and EURJPY. Let’s say there are 200 potential

trading days in a year, so 600 opportunities.

We know S2 or R2 is hit 33% of the time. That gives us 200 trading

opportunities a year.

Let’s now say due to slippage, etc. our strike rate drops from 57% to

55%. That would give us the potential for 110 winners a year and 90

losers of, about, equal Risk Reward.

20 net winners at 2% risk per trade would equate to an annual

return of 40% or thereabouts.

Note: Remember there will be trades where neither the Target or the

Stop is hit. We may not (close inside) hit R1 / S1 or hit R3 / S3. It has

been assumed that where this is the case we will close the position at

the end of each day and, over time, have an overall break-even position.

Perhaps just 50% of our trades will hit the Stop or Target. Still, this

would equate to an annual return of 20% or thereabouts.


Page 18

Frequently Asked Questions

Although entry is 100% mechanical there is some room for

discretion...

If Price Hits, Say R2 And Then R1 For A Winning Trade, Can I Take

The Trade Again If R2 Is Hit Again

There is no data for this. However, on the basis R2 held once (and

Target was hit) it would indicate it is likely to hold again. This would

suggest taking the trade again.

If Price Hits, Say R2 And Then R3 For A Losing Trade, Can I Take

The Trade Again If R2 Is Hit Again

Once again there is no data for this. However, on the basis R2 did not

hold the first time (and the Stop was hit) it would indicate it is not a

strong level. This would suggest not taking the trade again.

What Time Should I Manually Close Open Trades

The answer is, at a time that suits you. Again there is no data for

optimum manual closing time.

Remember, the (assumption) aim here for trades which do not hit the

Target or Stop is to end up with a net breakeven position at the end of

the year.

What Currency Pairs Should I Trade

As this is intraday trading the lower the spread the better. Currency

pairs or other instruments with a spread greater than 3 should be

avoided. Ideally, instruments with a spread of 2 or less, is preferable.

This ensures, as best possible, the spread has little or no impact on

overall results.

What If My Broker Does Not Provide Bid Price Charts

If you really want to trade this strategy it is simply best to find an MT4

Broker that provide Bid price charts, we use GKFX.

https://www.gkfx.co.uk/Register?utm_source=Jon%20McFarlane


Page 19

Add-Ons

The Forex Useful MT4 Day Trader Indicator

The Forex Useful MT4 Day Trader Indicator allows you to display all

pivot levels. It can also display much more information such as, open,

high, low, big round numbers, session times, etc.

The indicator, included in our FREE membership is available here.

The Pivots Strategy MT4 Indicator

The Pivots Strategy MT4 Indicator which also displays all pivot levels.

The indicator shows the current trade setup related to this strategy

including Direction, Entry, Stop, Target and applicable spreads. Allows

you to, should you wish, place Set & Forget orders for the day ahead.

The indicator also alerts you when an actual Entry is triggered (R2 or S2

is hit). Appropriate for those who are at their screen and wish to make

their trading decisions based on current market conditions.

Alerts can be visible or audible. They can also be sent via email or

SMS, usually at no additional charge.

The Pivots Strategy MT4 Indicator is included in the Forex Useful MT4

Indicator Bundle available here. The bundle also includes the 3 Little

Pigs and PAST MT4 indicators.

http://forexuseful.com/new/members/21812-mt4-day-trader-indicator/



Page 20

Legal Obligation & Risk Disclosure Statement

Trading any financial market involves a high level of risk and may not be

suitable for everyone. You should only trade with money you can afford

to lose. You should fully understand the risks involved in any form of

trading and be willing to accept them.

This product is provided for general informational purposes only; it is

based purely on the statistical analysis of price data. No part of it should

be construed as advice, investment, financial or otherwise.

This product is not intended for distribution to, or use by, any person or

entity in any jurisdiction or country where such distribution or use would

be contrary to the law or regulation or which would subject the publisher

to any registration requirement within such jurisdiction or country.

This product may contain links to external websites. The publisher is not

responsible for any content of those websites.

Although due care and attention has been taken in preparing this

product, the publisher disclaims any liability for any inaccuracies or

omissions.

By accessing this product the user accepts these conditions and agrees

that the publisher shall in no way be liable for any loss caused either

directly or indirectly as a result of using any part it.

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Pivot Points Trading Strategy - forexuseful.com