Advanced Pivot Point Strategies for Experienced Forex Traders
Pivot points are powerful tools used by forex traders to identify potential levels of support and resistance in the market. These levels are calculated based on the previous day’s high, low, and closing prices. While pivot points are widely used by traders of all experience levels, advanced traders can take their pivot point analysis to the next level by incorporating additional strategies and indicators. In this article, we will explore some advanced pivot point strategies that experienced forex traders can use to enhance their trading decisions.
1. Multiple Time Frame Analysis
One way to increase the effectiveness of pivot points is by incorporating multiple time frame analysis. Instead of solely relying on the daily pivot points, traders can also calculate pivot points for shorter time frames such as hourly or 15-minute charts. By analyzing pivot points on different time frames, traders can identify confluence zones where multiple pivot levels align. These confluence zones act as stronger levels of support and resistance, increasing the probability of successful trades.
For example, if the daily pivot point coincides with the weekly pivot point and aligns with a Fibonacci retracement level, it indicates a strong level of support or resistance. Traders can then use this information to plan their entry and exit points more effectively.
2. Pivot Point Bounces and Breakouts
Pivot points can be used to identify both potential bounces and breakouts in the market. When price approaches a pivot point level, it often acts as a magnet, attracting price towards it. Traders can look for price to bounce off the pivot point and trade in the opposite direction. This strategy works best when there is confluence with other technical indicators such as trend lines or moving averages.
On the other hand, when price breaks through a pivot point level, it indicates a potential breakout. Traders can use this breakout as a signal to enter a trade in the direction of the breakout. It is important to wait for confirmation, such as a candlestick close above or below the pivot point level, before entering the trade.
3. Pivot Point Reversals
Another advanced strategy is to use pivot points to identify potential market reversals. When price approaches a pivot point level and shows signs of rejection, it suggests a possible reversal in the market. These signs of rejection can be in the form of a doji candlestick pattern, a pin bar, or a bearish/bullish engulfing pattern.
Traders can wait for confirmation of the reversal, such as a strong bearish or bullish candlestick close, before entering a trade in the opposite direction. It is important to use other technical indicators and patterns to confirm the reversal, as pivot points alone may not be sufficient.
4. Pivot Point Extensions
Pivot point extensions are an advanced technique that can help traders identify potential profit targets. By extending the pivot point levels beyond the current day, traders can identify future levels of support and resistance. These levels act as potential profit targets or areas to exit trades.
For example, if price breaks above the daily pivot point and extends towards the R1 level, traders can use the R1 level as a profit target. Conversely, if price breaks below the daily pivot point and extends towards the S1 level, traders can use the S1 level as a profit target. It is important to combine pivot point extensions with other technical analysis tools to increase the probability of successful trades.
In conclusion, pivot points are powerful tools that can greatly enhance a trader’s decision-making process. Advanced traders can take their pivot point analysis to the next level by incorporating multiple time frame analysis, pivot point bounces and breakouts, pivot point reversals, and pivot point extensions. By using these advanced strategies, experienced forex traders can increase their profits and improve their overall trading performance.
