Many traders have asked me why I trade the pivot points and what is my fascination with them?
Just to clarify, I regard the Pivots as areas of a certain width, so for GBP I allow upto 20 pips as the lower/higher region.
The answer is very simple, here are the reasons:
- They are obvious and most traders (who use NYC open and close time) see the same area.
- There will almost always be a response to these areas, simple action and re-action. If the price has been falling sharply into S1, some traders will want to take their profits, so it will bounce.
- Even if the Pivot (I use s1, s2, s3 , PP, and r1, r2 and r3, although I do have the M's plotted for reference) does not hold, a very small stop tells you there is more in the move and other factors are at play. Could be big orders being pushed and the smaller intraday traders are being flushed out. So, for GBP a stop of 20 pips is more than enough and 15 for Euro). The probability of getting 10 - 20 pips on impulse is high and often you catch the reversal which means your risk is tiny and the reward can be 100 pips.
- You can use these points as a Stop and Reverse area too, which gives you another crack at it.
So, to sum it up, these are relatively easy trades and the risk/reward is pretty damn fine. Just look at GBP/USD today, hit S1, bounced 10, hit it again bounced 14, made a double bottom (5 minutes) and kicked off 22 pips so far. Have a profitable and peaceful day,
PS. Combine this method with a currency meter, just to make sure you are not standing in the way of an avalanche. Listen to news too. 🙂
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