Here is a perfect trade example using pivot points, in the following chart you can see how the huge pin bar formed at the R3 level clearly rejecting it and indicating the potential for a reversal in price.
To mange this trade I take two positions to divide up my risk, on eighty percent of the position I set the take profit at the next pivot which in this case was the R2 pivot which was at 1.4891. On the other twenty percent of the position I set a trailing stop in anticipation of the possibility of a trend day. I have previously added this into my back testing and the results have proved to be quite good. There are many times when the market just takes off and never looks back, it is these times that a strategy like this can really capture some great profits.
You can just imagine my surprise when I awoke this morning to find that I am still in this trade due to this strategy and currently up 140 pips.
click image for larger view
Where will this trade go? Well your guess is as good as mine and the best strategy I have found is just let the trailing stop do its work and I get stopped out when it is touched. The market can do anything and go anywhere and there is always the possibility that we could see a second or subsequent trend day and capture a portion of it also. This is where I just have to be patient and let the trade play out.
Look closely at the following chart and take notice how price reacts to these pivot points, you will notice at every level there is profit taking and further trading opportunities if you were that way inclined. You can clearly see profit taking happening at the R1, CPP and the S1 and S3 levels.
click image for larger view
These pivot points are extremely powerful and if you are a day trader and you are not currently using them I would seriously recommend you place them on your charts and just see how accurate and predictive they are, you may be quite surprised.
I have been doing a lot more back-testing on this trading system and will update this info in my next post.
Trade Well
Perry
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