How To Use Pivot Points

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Breakout Trading

Breakout trading is exactly what the title suggests. When a candle breaks through a pivot point, and closes beyond it, that suggests that the price will continue to move in the direction of the break. Here is an example.

The green highlighted circle shows the first time the price broke above the pivot point.

When a pivot line is broken, it can mean that the price will continue to move beyond that point. The way to trade breakouts is by entering in the direction of the break. When you enter the trade your stop loss should be on the opposite side of the broken line and your take profit should be the next pivot line.

In the picture above, the entry was about 2.0555 (green line) the stop would have been below the pivot at 2.0535 (red line). Your take profit would be around the R1 line at 2.0594 (next pivot after entry).

That trade was worth just over 40 pips. Don’t get too excited though these lines do not always work. Like anything they should be used in conjunction with other forms of technical analysis.

Range Bound Trading

Range bound trading is trading when the price is stuck in-between two pivot points. It is exactly the same concept as was discussed previously, in the trend lines section. Take a look at this picture.

The number of times a pair hits a pivot point and reverses reveals the strength of that pivot point. If a pivot point is hit 5 times in one day, without breaking, that tells you that the pivot at that level is very strong. Alternatively, if it has only been hit once you might want to wait for at least one more hit and bounce before you take any range bound trades.

If you are looking at your charts, and you see that the pair has touched a certain pivot level and reversed at least two times, you could start thinking about some range bound trading.