Chapter 15, Part II. How to use Pivot points. Page 4

Range trading with pivots

This strategy could be applied at relatively calm market and it’s based on points 4, 6 and 16 of our general rules.

We will mostly use weekly pivot points and sometimes monthly. So, here blue line stands for weekly pivot point, red line stands for weekly pivot resistance 1, lime line for weekly pivot support 1 and long gold line for monthly pivot.

Chart #1 | EUR/USD 4-hour chart and weekly pivot points
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Here you can see, that in the beginning of the week market has tested double support – WPS1 (Weekly pivot support1) and MPP (Monthly Pivot Point). And market has held above both of them (I will use some abbreviation if you don’t mind). It tells that first – monthly sentiment is bullish, second – according to rule 7 this could be just retracement in longer-term bull trend, because the market was held by WPS1 and did not move lower. So, as we know, market trades to the pivot in 70-80% of cases (rule 5), hence our next target with solid probability will be WPP (Weekly Pivot Point). So, that has happened – you can see, how WPP was a resistance first, but then market has moved above it. It tells that weekly sentiment also has turned bullish and market could reach potentially WPR1 (Weekly pivot resistance 1).

Akin situation you can see during the next week. We see a bull trend, but the market stands far above the WPP. According to Rule 5 we can count on retracement till WPP with 70-80 % probability – this is what we want! When market has flirted with WPP, tested WPS1 and returned right back – it tells that we can enter Long (bar with circle). Weekly sentiment is bullish, and potential target is WPR1. As you can see, market has hit it.

The same analysis could be applied to weekly chart with monthly pivots as well.