Ilmu Saham | ISX Stock Market Resource Center

Day Trading using Pivot Point Bounce

Posted in Investing Resources, Trading Resources by ilmusaham on March 26, 2008

From Adam Milton,
Your Guide to Day Trading.

Introduction

The pivot point bounce trading system uses a short term timeframe and the standard daily pivot points, and trades the price moving toward, and then bouncing off of any of the full or half way pivot points.

Pivot points are support and resistance levels that are calculated using the open, high, low, and close of the previous trading day. The pivot points include the pivot point itself, six full support and resistance points, and four half way support and resistance points, and are collectively referred to as the pivot points. When the price approaches a pivot point (especially for the first time in each direction), it will have a tendancy to reverse, and it is this reversal that is used by the pivot point bounce trading system.

The default trade uses a 1 to 5 minute OHLC (Open, High, Low, and Close) bar chart, and the daily pivot points.

  1. Introduction
  2. Open a Chart
  3. Add the Pivot Points
  4. Wait for the Price to Move Towards a Pivot Point
  5. Wait for the Price to Touch the Pivot Point
  6. Enter your Trade
  7. Wait for your Trade to Exit
  8. Repeat the Trade
  9. Trading Reports

Open a Chart

Open a 1 minute OHLC (Open, High, Low, and Close) bar chart of your market.

PivotPointBounce_1.png

Add the Pivot Points

Add the daily pivot points.

PivotPointBounce_2.png

Wait for the Price to Move Towards a Pivot Point

Watch the market, and wait until the price is moving toward a pivot point. For a long trade, the price bars should be making new lows as they move towards the pivot point, and for a short trade the price bars should be making new highs as they move towards the pivot point.

PivotPointBounce_3.png

Wait for the Price to Touch the Pivot Point

Wait for the price to touch the pivot point, which happens when the price trades at the pivot point price.

PivotPointBounce_4.png

Enter your Trade

Enter your trade when the high (or low) of the first price bar that fails to make a new low (or high) is broken. The following list shows the steps required for both long and short entries :

Long Trade

  1. Price bar touches the pivot point
  2. Subsequent price bar fails to make a new low
  3. Subsequent price bar breaks the high of the previous price bar

Short Trade

  1. Price bar touches the pivot point
  2. Subsequent price bar fails to make a new high
  3. Subsequent price bar breaks the low of the previous price bar

In the trade shown on the chart below, the bar that failed to make a new high is shown in white. The entry is when the subsequent price bar breaks the low of the entry bar, which is at 7217.0, with a target of 7207.0, and a default stop loss of 7222.0.

The stop loss can be adjusted to use either the pivot point as the stop loss, or the high (or low) of the entry bar as the stop loss, depending upon the market being traded.

There is no default order type for the pivot point bounce trade entry, but for the DAX the recommendation is a limit order.

As soon as your entry order has been filled, make sure that your trading software has placed your target and stop loss orders, or place them manually if necessary. There is no default order type for either the target or stop loss, but for the DAX (and usually for all markets), the recommendation is a limit order for the target, and a stop order for the stop loss.

PivotPointBounce_5.png

Wait for your Trade to Exit

Wait for the price to trade at your target or at your stop loss, and for either your target or stop loss order to get filled. The pivot point bounce trade can take anywhere from a few minutes to a couple of hours to reach your target or stop loss. Depending upon the market being traded, the target could be adjusted to be the next pivot point, and the stop loss could be adjusted to break even at a suitable time.

The targets that are shown on the chart are at 7212.0 (10 ticks), and 7207.0 (20 ticks), both of which were filled by this trade.

If your target order has been filled, then your trade has been a winning trade. If your stop loss order has been filled, then your trade has been a losing trade.

PivotPointBounce_6.png

Repeat the Trade

Repeat the trade from step 4, as many times as necessary, until either your daily profit target is reached, or your market is no longer active.

Trading Reports

The pivot point bounce trading system will be reported in the blog, and you can use these trading reports to follow the pivot point bounce trade, and also to compare it to your own trading.

If you have any questions about the pivot point bounce trading system, or would like to see additional charts of the trading system, leave a comment in the blog, and I will be glad to provide additional information.

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