Pivot trading system is a very effective and reliable trading system in the forex market that can be used alongside other indicators and you can be sure of raking in some profit before the end of the days trading is over. Pivot point was originally discovered in the stock market.
They were used by floor traders to note possible areas of resistance or support before commencing the day's trade. Pivot numbers are now made available online to forex traders to use by plotting it on their trading platform to trade profitably. Without pivot numbers it is like flying a plane with no compass or map, so these points are very important. The question for a newbie forex trader will be how to use the pivot point to trade the forex market. Listed below are three effective pivot points trading strategy that anyone can use.
1. Pivot breakouts: You can use this strategy only when the current price moves close to the pivot number, and tries to break it. Before placing any order watch the behavior of price around the resistance or support number, if price decides to break through that pivot, then you should place your stop loss on the other side of the number that was penetrated and you should normally target the next pivot point for profit.
2. Pivot Bounce: If you watch price in relation to the pivot number and you see price hitting a particular pivot more often, and it is unable to penetrate that pivot. Then we have a bounce. You should place a sell order if for example the bounce happened at a resistance number and your stop loss should be above that pivot point.
3. Pivot point combination: This strategy is the most effective of them all, because you use it in combination with other indicators of your choice to confirm if price has truly broken through a pivot. You can plot two moving averages, MACD indicator, and stochastic and relative strength index to confirm before you place your trades. This is an advance form of trading which is very profitable if used well with discipline.