As well as support and resistance levels, the pivot point level will not be able to hold price movements for all time. Using this pivot point capability is only suitable for use when determining trading ranges.
In this discussion the pivot point level fails to maintain its level and is able to be penetrated by price movements of the currency pair and you must have a set of tools to take advantage of this situation (Refresh: forex market is like two sharp blades).
As previously discussed, there are two types of traders, aggressive and conservative traders when using breakout events to get profit.
You only need to remember that when making a decision to become a conservative trader, which means waiting for the test of support and resistance levels, then that means you will miss the initial moment to get profit or the term you will miss the train or it can be too late on the train 🙂
Using Pivot Points to Capture Breakout Potential
Let’s look at the price movements of the UER / USD currency pair with a 15 minute time frame.
Based on the above price movement it can be said that EUR / USD is moving strongly and opening with a large gap above the Pivot Point (PP) level . Prices move strongly upwards previously held at R1 level.
After breaking the R1 the price again moved wildly through R2 as much as 50 PIPS.
If you are a trader who is aggression then you will be aware of the opportunity to get profit early and of course you will get a decent profit first 🙂
But if you make a decision as a conservative trader, it is certain that you will regret that the R1 level test process does not occur and the price continues its journey through R2.
But it must also be remembered if you make too aggressive decisions, there is a chance of getting a false signal, for example, the price movement cannot continue directly but testing the level first and you apply Stop Loss too close to R2, the opportunity to get profit will also be small because Your trading will be closed first.
Where to Put a Stop Loss for a Trading Breakout Strategy
The most difficult thing to trade with the breakout method is to apply the Stop Loss position, because we are looking for very fast and strong price movements. Unlike when you use a pivot point to determine a trading range that awaits the price to break the support and resistance levels.
After a support level is broken, the level will change to resistance and vice versa. If in this case we take a BUY position when the price is able to break R1 then we put the Stop Loss position below R1.
For more details, let’s look again at how we put the Stop Los position on the forex trading currency pair EUR / USD.
In the example above when the price movement is able to penetrate R1 then we put Stop Loss below R1 and when we are sure that the price will continue to move upwards we change the Stop Loss and we do it manually while looking at whether the price will continue.
Like when using other methods or indicators, you have to be careful of risks when using a breakout strategy for forex trading.
First, you cannot predict for sure whether the price will continue or not. Maybe you entered at the wrong time that you thought the entry position would continue and it was not because the entry position turned out to be a top position or a bottom of a price movement (reversal is waiting bro :)) and you could say you are getting a false signal.
Second, you also cannot ensure that the breakout that occurs is real or turns out to be just a wild price movement caused by instant economic news. Price hikes are normal as long as economic news occurs or releases. So you have to be careful with an economic news that is announced and please see Forex Calendar for daily or weekly periods.
And the last is that you can use other indicators such as candlesticks, and momentum indicators as confirmation of your estimates of the price movements of currency pairs.