Daily Pivot Point Trades

Something to keep in mind:

While the 75% of the Pivot-High (or low) is arbitrary, the raw win % is not. While the graphs are pretty, what is more important to consider is the win percentage and the hypothetical R:R and what they mean.

1) Statistically, there is a daily bias to the market.
2) The "breakout" in the direction of the bias can be significant.

I would say for now the best risk management you can use is to just walk the SL up using the midpoints as new SL levels as the price breaks past the various R/S levels. Also, the futher from the pivot you get the more overbought/sold the market is considered and you might want to pay more attention to it.

BongaBonga,

Have you done testing or have you forward traded this system on pairs other than the GBP/USD? Thanks for sharing.

I have a feeling that by setting Stop Loss at S1 Or R1 without TP set, in many

cases you going to be wiped out in the Range Market, perhaps (bullish example) by setting SL

at S1 and Setting TP at R1 could balance your win-loss into some

favorable %.

I personally have only used it for EURUSD and GBPUSD. With the midnight EST as your new day any european currency should work. For the Asian-Pacific currencies I would say 1700EST would be your best bet.

Keep in mind when/where the most money trades and work from there.

A quick bit of math has shown that for 2011, the daily range stayed within R1 and S1 only 23% of the time. It has stayed between R2 and S3 a full 70% of the time, and for R3/S3 92% of the time.

You can also look at it from the glass half full view: Price hits R1/S1 77%, R2/S2 30%, and R3/S3 8%

Depending on your risk tolerance, having a TP at R1/S1 could be very reasonable. The total pips risked between R1 and S1 is essentially the same over the course of a year (The difference is less than 1%). With a win percentage over 50% you have yourself a complete system. Start planning your move to Costa Rica!

I personally though like my chances of the R2/S2 and the R3/S3 trades. Thus my lack of a TP.

Guys, I have been receiving PMs about a possible EA. Since it is pretty straight forward I have decided to try my hand at programming one. Wish me luck!

I would like at this time to give each of you the mere importance of the Daily Pivot:

Floor traders and other professionals who do the actual buying and selling of futures contracts and other trading arena, including FX, in the trading pits of the exchanges, generally employ very similar system for valuing the price of such contracts in the absence of significant outside influences such as indicators. This system employs a method of calculating relative value based on the price activity of the prior day. A price equilibrium point is determined as well as support and resistance levels in relation to that equilibrium point. This method is called the Pivot System.

Pivot System price levels act as potential support and resistance zones throughout the day. They serve as focal points for floor professionals as they adjust their bids and offers, especially when trading activity is slow. The use of these values, along with additional support and resistance levels that are on your charts, help in determining appropriate areas for trade entry, stop placement, and exits.

The principle reference level under this system is the Daily Pivot. Generally, as we enter each trading day, we regard this level as our balance point between bullish and bearish forces. A demonstration of significant price activity above the Daily Pivot is considered to have bullish implications, while significant activity below this level is bearish. Although actual trading activity is initiated by a variety of other market indications, we look at price behavior relative to the Daily Pivot level as an aid in determining the market's general directional bias.

Reversal patterns are most often single and double bar patterns that identify a likely turning point in market behavior. We use reversal patterns primarily on an intraday time frame, most frequently on the 30 minute TF.

Reversal patterns are oftentimes the trigger points used to enter and exit a trade. The ability to identify these patterns as they occur near important support and resistance levels is of critical importance in this method of day trading. They are the market's way of telling us "NOW!"

The Daily Pivot method of day trading uses the occurrence of these reversal patterns near support and resistance levels as a trigger into our trades. Each one of the support and resistance levels; such as highs, lows, 100 and 200 SMA represent chart areas which have the potential for creating important shifts in market psychology. But, not every level creates a significant market reaction. The occurrence of price reversal patterns helps us distinguish those levels which have a greater likelihood of creating a reaction from those that don't.

Fibonacci was a 12th century Italian mathematician credited with the discovery of some very unique and interesting relationships between certain series of numbers. A vast amount of material is written about his findings, detailing their application in both the arts and the sciences.

Simply put, the Daily System approach to short-term trading uses Fib Retracements on an intraday basis to measure how far a market has retraced its primary move. It helps determine, in large part, how much the market has taken back, from that which it has already given. If the market "takes back" only a small portion (.382) before continuing in the primary direction, we know that the trend is strong and that it will likely continue past the most recent intraday swing pivot. If the market "takes back" a slightly larger piece (.5), then we know that continuation of the previous trend is less likely. And if it "takes back" a significant chunk (.618), we know that the trend is much more poorly established than original impressions might have left.

Range Projection Levels are used to determine likely support and resistance for an entire day's worth of trading. Whereas the Pivot System Levels are used to determine where important shifts in market psychology may occur on an intraday basis, Range Projection Levels are used to help describe the outside limits of trading for an entire day of activity. We use them as another tool to help us create structure out of unstructured market occurrences. They are simply a means of judging where we might go from where we already are.

For the Daily Pivot Approach to short-term trading, there are two sets of numbers to describe this probable range. The Normal Range Projection Levels define the outer limits for a typical trading day. The Extended Range Projection Levels describe the outer limits on more volatile days when the Normal Range Projection levels are exceeded.

Narrow Range days are trading days in which the range from the highest price traded during the day to the lowest price traded during the day is the narrowest for the next day trading.

When a Narrow Range signal fires, we can expect range expansion (the trading range of the next day or the next few days will likely be greater than that of the signal day) and a pickup in price volatility (the range of intraday swings is likely to be greater, offering greater price change in each swing).

Of all the pattern signals that come out of the Daily Pivot System process, markets that fire Narrow Range days often present the greatest potential for profit. Not every Narrow Range day results in range expansion and a pickup in volatility, but, by practicing appropriate tape reading skills and using the indicators properly, the trader can be better positioned to capture the move when the expected pickup in activity materializes.

In order to make the most effective use of the trading the Daily Pivot System, it is important that the you develop a feel for the techniques on a very visceral or "gut" level. Optimal trading performance comes when the reaction to certain market setups becomes an automatic response . . . an almost instinctive reflex closely integrated with our most basic beliefs concerning price behavior characteristics. The goal is to get to the level where you can simply glance at a chart and be able to instantly zero in on the pockets of opportunity.

The most direct route to this level of trading confidence is through the process of actually placing trades and experiencing their outcome. Real trading is often the most effective means for understanding the nuance involved in the successful use of this technique, and more importantly, how one's own psyche reacts when a trade is not successful. Practice is the process of rehearsing your abilities to identify the market setups so as to enable quick recognition and to bolster your confidence in taking appropriate action when the timing is right. Significant effort should be dedicated to this process before real dollars are risked. Extensive practice leads both to shorter response times in the real trading environment and to an overall level of increased confidence.

Pivots Point calculation is done at the end of each trading day which universal ending is 17:00 ET.

A day trader can use daily data to calculate the pivot points each day, a swing trader can use weekly data to calculate the pivot points for each week and a position trader can use monthly data to calculate the pivot points at the beginning of each month. Investors can even use yearly data to approximate significant levels for the coming year. The trading philosophy remains the same regardless of the time frame. That is, the calculated pivot points give the trader an idea of where support and resistance is for the coming period, but the trader - because nothing in trading is more important than preparedness - must always be prepared to act.

Dove, don't be a stranger...appreciate all you have done and shared for the members of forexfactory. Thanks.

I appreciate it and thank you ---- I drop in every once in awhile to see how things are going and happen across this thread and had to add my 2 cents worth. It has been a long time since anyone had a thread up on pivots so it drew my interest.

Dove, glad to see you stop by. Thanks for the post!

For those who do not know how calculate Pivots - here a link for a calculator in helping you getting the daily pivots.

http://www.earnforex.com/pivot-points-calculator

One thing I do want to stress is in using the Mid-Level pivots. The Mid-Level pivots are more generated then the R's and S levels - especially with the E/U. The E/U uses the M3 and M1 more so then any other resistance/support of the daily pivot for taking profit and also for reversals.

Once you have your R/S levels it is then easy to put the M levels in your pivot point calculator.

M1: S1 minus S2 divided by 2
M2: Central Pivot Point minus S1 divided by 2
M3: R1 minus Central Pivot Point divided by 2
M4: R2 minus R1 divided by 2

Take care and God bless.

You are more then welcome --- and keep up the good job. I will see everyone later.

Here is a quick EA that will generate the appropriate Order using the basic rules outlined in the first post.

For options:
EAOn - set to True for the thing to work
TimeZone - doesn't do anything yet.
LotSize - how big of an order do you want?
TakeProfitTarget - there are four options: 1,2,3,0. 0 for no TP, 1 for R1/S1, 2 for R2/S2, and 3 for R3/S3.

Right now it just generates an order whenever there is a new tick and uses your broker's timezone as the new day cut off. For Oanda users trading the GBPUSD or EURUSD that's not an issue.


Now for the warning:
Forex trading has risks and it is your responsibility to know those risks. I am not to blame if this EA fails and you incur losses. If you do have a problem, politely let me know so I can fix the code. If you just want to complain I will ignore you.

In other words: You're an adult, act like one.

Good morning,

Wonderfull thread, thanks for sharing. I have just try your EA, it places order correctly (right now sell limit exactly at daily pivot: 1.3093), correct TP and SL but it places a new order every second, right now 50 orders......

I think there must be a little bug, but really little....

Thanks again

Yes, I am aware of that issue, I mentioned it in the post. A simple way around it is to require manual confirmation and then turn off / remove the EA once the trade is submitted.

I intend to work on it more tomorrow when I am free.

Thank you very much, and sorry for not reading the post more carefully......

Its all good! I appreciate that you brought up an issue in a respectful manner. I could have honestly not known about the "bug", the only way to know for sure is to say something.

Just finished my 1º test day (manually).

15 pairs, TP/SL at R1/S1, close all at the end of London Session.

EUR/AUD: -56
EUR/CAD: -3
GBP/USD: +108
GBP/JPY: +33
GBP/CHF: +52
GBP/CAD: +40

Total: +174 pips, not bad at all.

Good R:R, no indicators, one trade a day..........

I wasn't as brave as you.

Just the 2 pairs for me - G/U & E/U.

E/U - No trade
G/U - +107

Thanks guys for posting some results! Glad to hear of your success.

If you don't mind my asking; what 15 pairs did you use, and why?