In this article I look at some of my favourite intraday trading patterns including naked price action patterns and Japanese Candlestick patterns. Read more »
Most commentators tell you to cut your losses short and let your winners run. This is the ‘golden rule’ of trading. If you do this, only this, and nothing else, apparently, you are bound to make money. (So long as your risk settings are also right). Read more »
Stock markets fell on Wednesday led by consumer services, industrials, and healthcare. The S&P 500 dropped by -0.40% while the Dow Jones Industrial Average fell -0.44% and the Nasdaq declined -0.42%.
It was November 2008 and I’d been trading full time for only a couple of months.
The credit crunch was in full force and every day presented new challenges and headaches.
Until Lehman Brothers collapsed I had been doing well. Trading on a simulator, I was happily bringing in a reasonable £300 a day.
Then, everything changed. As soon as we went live, the markets went into chaos. The FTSE 100 would drop massively in the space of a couple of minutes. Then, it would reverse almost as fast, for no other reason than traders being too scared to hold on to their shorts. Read more »
The following day trading strategies are meant for beginners and experts alike but remember that day trading is full of risk and the majority of those who attempt to day trade end up losing money.
One reason for this is that financial markets are dynamic and extremely efficient. Markets are dominated by machines which means they are very hard to beat.
Building an intra day trading system for trading futures, stocks, or forex is no easy task and many would say that in today’s markets it’s simply not possible.
For one thing, the markets are not at all like they used to be.
As I mentioned in a previous post, I do not classify day trading as an easy route to riches. However, if you were to ask me what my favourite approach would be, I would say pivot points. In this post I will illustrate how to use pivot points in trading stocks and forex.
Pivot points can be calculated on most charting packages now but it’s still handy to know the exact formula so you can calculate them yourself, so here it is:
In essence, I think pivot points work quite well because they are always adapting to recent price action. They are also watched by lots of professional traders and because of that I think it gives them more significance.
Traders can use pivot points in different ways. Personally, I find them most useful as profit targets because when a market hits a pivot level it nearly always holds up there for at least a short period of time.
I tend to be bearish on a market so long as the price is below the pivot and bullish so long as the price is above the pivot. I also like to combine pivots with other indicators and to watch the news.
For example, if the market drops through the pivot on some significant piece of news I will often short the market and look to buy it back on one of the support levels. Depending on the momentum of the market, I might take all the position off at the second resistance/support or I might take half the position off. Indeed, I might hold out for the third level if price action is really moving.
Rarely, if volatility is dead, I will take a position off at S1 or R1.
Watching momentum is therefore very important when using pivot points and it’s also a good idea to watch the ATR. That way you can see what is happening to volatility. If volatility and momentum are tapering off it’s a sign to exit your trade more quickly.
In order to illustrate how to use pivot points in trading I thought it would be a good idea to show some examples from last week. These charts are all taken from the same period. You’ll notice from these charts that pivot points do get hit a lot of the time.
As can be seen in the next chart, pivot points often produce uncanny levels in which to enter or exit a market.
On the 29th July, the pivot, or just below it, would have been an excellent place to sell and the third support (S3) would have been a great place to close the trade, making around 30 pips.
On the 30th, the market declined and bounced off the second support and on the 31st the market stayed around the pivot for most of the day.
On the 1st August, the currency pair pushed through the pivot in the morning and moved right up to the third resistance, giving a trader 40-50 pips if long.
During the same period, the pivot also acted as a strong level for GBP USD.
On July 29th, the market dropped 60 pips from the pivot to the third support and on the 30th the currency moved up to the pivot before falling back to the second support.
On the 31st, GBP USD hit the pivot in the morning then moved down to the first support where it consolidated.
And on the 1st August, the currency touched the pivot in the morning then moved lower throughout the session, closing right on the second support. The second support (S2) was a great place to take profits.
As you can see from the next chart, a similar story unfolded for the Kiwi US dollar pair.
On most days, the key pivot levels provided great places to enter buy and sell orders and take profits.
On the 29th, the currency fell through the pivot all the way to the second then third support.
On the 31st, the currency turned back off the first resistance to the pivot and on the 1st August the currency moved between the first support and first resistance.
As can be seen, pivot points can work in volatile as well as trending conditions.