Daily Pivot Point Trades

Hello! Thank you for stopping by this thread. In here I would like to share with you a simple method that I have been studying and backtesting. I have had issues with overtrading and not setting realistic profit targets, as a result my trading has sucked. To combat the overtrading I started committing to a single trade a day, if it failed, that was it. Obviously, that reduced my drawdown, but didn't help my profit taking.

That's where the Daily Pivot Point (DPP) comes in. With the DPP I can determine a daily bias (long or short) as well as reasonable SL/TP. What's better, it is easily backtested with just the daily high, low, and close. And that is exactly what I did using Oanda MT4 historical data for the GBPUSD going back to 2005.

My testing rules were as followed:
Using the High, Low, Close, calculate the R3, R2, R1, Pivot, S1, S2, S3

R3 = High + 2*(Pivot - Low)
R2 = Pivot + (High - Low)
R1 = (2*Pivot) - Low
Pivot = (High + Low + Close)/3
S1 = (2*Pivot) - High
S2 = Pivot - (High - Low)
S3 = Low - 2*(High - Pivot)

If the Close (aka, the Open) was lower than the Pivot, then it was a short bias, higher meant a long bias.

For a short bias day:
If the new high was higher than R1, it was a loss, otherwise it was a win.
If a win, Pivot - Low was listed as the pip change
If a loss, Pivot - R1 was the pip change

Other way for a long bias day

At the end of the year added up the pip change row and got a result. With some simple excel data analysis I got the results that are attached.

I did no optimization, just took every trade. On the table and the graphs I labeled three outcomes: Optimal, Expected, Worst. Basically, "optimal" is the best case, sold at all the highs and didn't lose any more than the initial SL. "Expected" is just 75% of the winning pips and the initial losses. "Worst" is 75% winning pips, and 125% losing pips.

To trade this manually I just get the next days DPPs at midnight EST (you can get those values online, no need to calculate) and put in a buy/sell order based on the bias and a SL of R1/S1, no TP. Since I am in Texas, I then go to sleep. When I wake up in the morning, I check my order to see if it took, if not, I cancel it. If it did take and it looks good I let it go until about an hour before the London market closes.

Anyways, there you have it. I know there are optimizations that can be made like don't trade on certain news releases, but for a pure mechanical system it doesn't get easier than this.

I'd love to hear comments, suggestions, complaints. If you would like my spreadsheet to do your own analysis pm/email me and I will send it to you. It is set up where you can stick in your own favorite currency and it will generate everything automatically.

If those calculations = true, then EA could be created

and everyone will just sleep well and collect pips on auto-pilot,

would you think?

Idea is pretty simple and straight forward, should work..

Can anyone create EA based on this system rules?

So we can test it, I personally sleeping 1 hour pre - London open

Hey if nobody want this coded for free, let's get some 3-4 people

and pay $100 for coding..

'm interested in this new blog as i use pivots alot. Keep posting

Cheers

(Lol, the email I got from FF summarizing your post ended on "would you think?" Making for a much harsher post.)

As far as an EA is concerned, I have no doubt that it could be done. There aren't any sound take profit criteria or money management rules though. For my results to be valid you had to have risked the same $/pip value for every trade, regardless of how nasty looking the individual R:R would be. For example, looking at the worst trades for 2008 and 2009 (-516 and -470) the testicular fortitude to risk that much in a single trade has to be pretty strong.

But! This study shows that you have to look "bigger picture" and trust that the statistical edge will win out and you'll make that money back.


As for the sleeping during the market open. I haven't shown that different 24 hour periods are any better or worse. I use Oanda which happens to use midnight EST for the new day, making my data analysis easy. I can not tell you if 000 GMT (a 2 hour difference) or 1700 EST (7 hour difference) is better or worse. And with a little common sense it should be clear that midnight EST wouldn't work so well for the Asia-Pacific currencies.

If you have a currency / 24hr period pair you'd like to run through the ringer I don't mind doing it or I can send you my spreadsheet and you can easily plug in your data. For a different period I would need to know a broker with MT4 that starts their new day at that time.

I will test your system manually , thanks for share

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scalping system

Looks interesting. I just found your thread before going to bed. I'll check it out some more tomorrow. Out of the different methods of trading that I've done, the PP, S/R stuff works the best for me. Thanks for sharing.

i think that win and loss pips should be calculated form open price not pivot

Price gravitates towards the pivot, if you just open a trade at midnight you are risking extra pips for no reason.

When I get the new pivot values I put in a buy order with the execute price at the pivot and the SL at the appropriate S1/R1. You might miss 1 out of 150 trades, but "pivot point theory" is very clear about the power of that daily pivot.

Looks like I wasn't very clear in my initial post about how I use the pivots and their significance.

The daily pivot is just the average price of the previous day. If no new information comes into play, the market will see that as the fair value. We use that "fact" to predict how the day's price movement will go. If nothing changes price will bounce between the pivot and either R1/S1 depending on the bias. If the market is restless then it could bounce between R1 and S1.

Why R1/S1? I'm sure you've heard and seen that the market ranges the vast majority of the time. The 1st level support and resistance levels use that idea by centering the previous day's range around the daily pivot, thus R1/S1.

If price breaks past the R1/S1 then something has changed the perceived value of the pair (probably news). If you're on the wrong side, crud, thus the SL. If you're on the right side great! The good thing is you can safely assume (and I have shown) that the market is bias and the breakout will usually be in the same direction as the bias.

To put it in another way: Price trends. Until it doesn't.

At first glance it might seem that the math used to come up with the pivots is just pulled out of a hat, but in fact it is quite logical. My "method" just shows those basic market ideas can be used to trade with. If you were awake during market hours you could watch for price to bounce off the various pivot levels and make quite a killing scalping. If you're not awake, you can use the statistical edge I have shown to profit.

I suggest anyone reading this thread to go google "forex daily pivot points". There is a lot of great material out there on it.

and if the trade is winning how to TP with 75% of daily range ? based on real trading does this easy to achieve ? ...

We know what pivots are and how to calculate but what is not very clear is the strategy its self
At least entry points then we can make an EA and publish it here

I just picked 75% because most of the time I've been able to close around that mark.

As far as the entry:
Buy or sell at the daily pivot depending on the bias of the day. Set the SL at S1/R1. That's really all there is to it.

I should have probably put this thread in trading discussion instead of trading systems. I'm not claiming this to be a fully fleshed out system that you can go and code up and retire to Costa Rica. Its more or less a dude with time on his hands, an idea, and excel right now.

If you came for an EA and not discussion, I'm sorry. So far there is no EA. Of course, if you need an EA to put one order in a day and then to close it 8 hours later then you might want to consider a longer term solution. (maybe weekly pivots)

Since I couldn't sleep I tested a few things with my data. Turns out Mondays are not good trading days (using Sunday H,L,C). The win percenage went up to 71% just by excluding Mondays.

If you combine the H,L,C of Friday with Sunday though it should work out (giving you a 24 hour period to base your pivots off of for Monday trading)

Edit: just realized it made no sense to trade Tuesday through Friday, then Sunday. If traded just Tuesday through Friday I came up with a 67% win rate and roughly 10,000 pips for 2011 through dec 9th. By skipping Sunday and Monday you only gave up 1000 pips. (According to the model)

I am a trader since 1986 I don’t want a retirement in Costa Rica in the island of Crete would be fine but is not here the point .
Let me repeat and correct me please!
1.When price open below pivot there is a bear bias at opposite is bullish
Enter when prices touch the pivot point to the biased direction
2.Exit long in R1 exit Short S1 opposite for SL (Long at support, Short at resistance)
Is that correct ?
Thanks in advance

Maybe an example would help.

If I get the following information:

R1 1.2550
Pivot 1.2500
S1 1.2450
Close 1.2525

Then my order would look like this:

Buy 1.2500
Stoploss 1.2450
Take profit none

Its on you to close the trade. I have found that for GBPUSD a good rule of thumb is either before US open, before big news, or before Europe starts going home.

OK Thanks

nice simple trade idea but your excell results could never be achieved as you took profits with the benefit of hindsight. You cant know in advance what the low/high will be or what 75% of the days move will be. You need to test with a target that can be applied going forward. Time of day is fine but I would try 2x risk using the outer pivot levels s2 r2 as targets. The results wont be as impressive but at least you can reproduce the system live

Many thanks for sharing this strategy.....


Looking forward to back / forward testing..

I do agree, but for the sake of testing I just put in 75%. I will work on coming up with a strict set of rules for closing trades that everyone can use for forward testing. Personally, by focusing on one pair, keeping an eye on news and the time of day I have been able to close trades with a good amount of pips remaining.