How to Determine Trading Range Using Pivot Points
Now it’s time we discuss how Pivot Points are used to determine trading ranges such as when using support and resistance levels. As in the price support and resistance levels will always test the level.
When prices often touch the pivot point level and return to move in opposite directions, the stronger the pivot point level. And it is actually called “pivoting” because the price touches the support or resistance level and then reverses.
If we look at the pivot point level that continues to survive then this is a good opportunity to determine the position in forex trading.
If the price is near the resistance level then this is a good opportunity to open a SELL position and put Stop Loss above the resistance level.
If the price is close to the support level then this is a good opportunity to open a BUY position and put Stop Loss below the support level as an effort to implement risk management if we make a prediction.
For more details, let’s look at the application of the pivot point on the price movement of the GBP / USD currency pair with a 15 minute time frame.
When you see a chart like the one above, the things you need to do are as follows. If you believe that the price will continue to be held below (unable to penetrate the S1 support) then you can open a BUY position at the price above S1 and put Stop Loss below S1 or S2.
If you are an aggressive person and believe that the Support S1 level is a strong level then you can put Stop Loss under S1.
But if you are a conservative person then you can put a Stop Loss below the Support S2 level because you believe this is the level that most likely the price will not be able to turn back the direction or it can be said that the S1 and S2 will be resistance.
For take profit matters you can put it on the level of the Pivot Point (PP) or the first Resistance (R1).
Okay let’s look at the price movements of the GBP / USD currency pair above on the following chart.
It turns out that the price movement of GBP / USD is in line with your forecasting that S1 is a strong level that is difficult to penetrate and the price is moving backwards. If you trade according to the above scenario then you can take profit of some PIPS 🙂 what? happy!
Keep in mind yes that not every time the scenario as above happens may be slightly flavored with other things so that we can use other indicators (such as candlesticks or RSI ) as a confirmation signal that reinforces the results of the decision.
In every trading thing we need to do is discipline in applying risk management, for example in the above scenario you are sure that the S1 level is a strong level that cannot be penetrated so you do not put Stop Loss.
What will happen if it turns out the price can penetrate the S1 level and continue its downtrend journey. The thing that happens is that your capital will decrease and even disappear.
Now there is more writing about the pivot point level that is able to be penetrated by prices in the forex market and how we deal with it. So don’t go anywhere, please read the next article about how to trade when pivot points can be penetrated 🙂