Pivot Scalping with Candlestick Patterns Strategy For MT4

Pivot Scalping with Candlestick  Patterns Strategy For MT4

Please note: This strategy was publicly published in the trading community and is free to use. We do NOT make an attempt to decide if this strategy is profitable or not, because we know that the major factors regarding trading results are the skills/experience of the trader who executes the strategy. Therefore, we are mainly explaining the components and rules of the strategy. If applicable, we are highlighting advantages, disadvantages and possible improvements of the strategy.

 

The Pivot Scalping with Candlestick Patterns Strategy For MT4 is a composite of technical trading techniques that combines candlestick patterns, price action, and a timing indicator to form a robust hourly trading system. Of course, to trade this strategy effectively, familiarity with the basic concepts of pivot points and the common yet potent Japanese candlestick patterns is needed.

And this article details those specific patterns which the system employs for trading the key support and resistance levels that pivot points create. But more importantly, it demonstrates how to trade this strategy successfully by framing the trade setup rules and citing specific examples.


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Japanese Candlestick Patterns

By all accounts, the core aspect of this trading system is the Japanese candlesticks, and here are some of the patterns that the indicator for this system identifies.

 

    • Harami can be either bullish or bearish, and it is described as a candle that opens and closes within the previous candle's real body. A bullish Harami pattern is when the candle on the left is a bearish or a red candle, and the one on the right is green or bullish. Conversely, a bearish Harami pattern is when the one on the left is green, and the right one is red. Harami mainly signals either a reversal or an extension, and it just depends on where it is situated.




    • Stars are a three-candle pattern with the first candle heading in the direction of the trend followed by a small-bodied middle candle and then a third one that runs the opposite direction of the first candle. Stars can also be either bullish or bearish. The bullish star is called the morning star (appearing on a downtrend), and the bearish one is called the evening star (appearing on an uptrend). The star's formation indicates a potential reversal.




    • Three White Soldier/Three Black Crows are composed of three long-bodied candles uniform color. A three white solider is made of three green candles with each new closing price higher than the one before. The opposite applies to three black crows where the color of all the bodies are red. Such a formation is another sign of an impending reversal as it suggests that one side of the party has gained a foothold in three consecutive periods.




    • Bullish/Bearish Engulfing patterns are comprised of two candles. The first one follows the direction of the trend while the second one trades against it. The second one is described as having a real body that is taller than the first one. In other words, the second one completely engulfs the prior candle hence the moniker of the pattern. Again, it can either be bullish or bearish. For a bullish engulfing pattern, the second candle emerges from a downtrend and opens lower and closes higher than the previous red candle. It is the other way around for a bearish engulfing pattern.




    • Three Outside Up/Outside Down is another three-candle reversal pattern. Its first two candles are an engulfing pattern, and the third is a candle that pursues the direction of the second candle. It is interpreted as an acceleration of the reversal signal of the engulfing pattern.




    • Three Inside Up/ Inside Down is similar to the three outside up/outside down. But instead of an engulfing pattern comprising the first two-thirds of the formation, it is an inside candle. An inside candle has a large first candle in the direction of the trend, and the second one is contained within the first one. As this is a three inside up/inside down pattern, the third one closes either above or below (depending on the trade) the middle candle. If the last candle closes above the second, that is a three inside up pattern, and it is an inside down if it is below.




  • Dark Cloud Cover/Piercing line is a two-period pattern with a third candle serving as confirmation. A dark cloud cover appears on an uptrend, and it begins with a candle serving as the trend's high point. The candle that follows opens higher but trades lower and closes below the first candle's midpoint (it almost resembles a bearish engulfing pattern that failed to complete). Then, if the last candle trades lower, that is a confirmatory signal. This pattern's counterpart is called the piercing line, which is just the same as the dark cloud but in reverse.


Pairing with Pivot Points

After grasping all the candlestick patterns and what each of them indicates, the next step is to understand the significance of finding them on the support and resistance areas created by pivot points.

Pivot points are based on three price metrics (close, high, and low) of the previous day, and it is manipulated to create up to seven horizontal lines, which are then plotted on the current day.

Those horizontal lines are important for certain intraday traders because it is based on an exact number, not a subjective delineation. And it is vital for traders of this system because, as mentioned, this system is best suited for the hourly timeframe and the pivot points will provide the entry, stop-loss and take profit levels.

 

Ergodic Indicator

Now, this indicator, despite it seeming like an esoteric finance subject, is only a way to initiate an entry – at least for this system. It acts like any other trading indicator like a MACD, for instance, that signals a potential entry through an intersection of its two lines.

Similarly, that is also what should materialize on the indicator sub-window. When the dashed line cross above the Dark Turquoise line, it is a bullish signal and vice versa.

 

Trading Mechanics - The Pivot Scalping with Candlestick Patterns Strategy For MT4

 

As touched on earlier, three indicators will be necessary for this system, and they are the following:

 

    • Candlestick Patterns Indicator - this will be necessary for finding the candlestick patterns discussed in this system automatically.

 

    • Pivot Points - this plots the pivot points of the previous session on the chart.


    • Ergodic Indicator

 

A separate template file called “pivot point scalping with candlestick pattern” will make it easier for loading up the necessary indicators on the chart.

The system follows the simple three-step process below to find a valid entry.

 

    1. A candlestick pattern should appear near or at a pivot level.

    2. The ergodic indicator must have a recent cross to support the candle pattern.

    3. Once the two steps are met, a trade is initiated. For a buy trade, the upper pivot line serves as the initial profit target, and the lower pivot level is the stop-loss. For a sell trade, the lower pivot level is the initial target, and the higher one is the stop-loss.

 

Short Trade Example - The Pivot Scalping with Candlestick Patterns Strategy For MT4


In the example above, the Harami pattern that was spotted by the candlestick pattern indicator is encircled. This looks like a potential short trade since the Harami lies on the R1 or Resistance 1 level of the pivot points.

The Ergodic indicator is also on the verge of registering a bearish signal. It would typically be best to wait until the hourly candle closes to see if the ergodic indicator will offer confirmation for this trade.

If it does, the entry would be at the next candle with the stop-loss on the red line above marked DR2, and the initial profit target is at the blue horizontal line below, which is the main pivot point (DPV).

 

Buy Trade Example - The Pivot Scalping with Candlestick Patterns Strategy For MT4


Now, for this buy setup, a bullish engulfing pattern appeared on the main pivot line, and when the third candle was completed, the candlestick indicator also alerted a Three Outside Up pattern. Supporting this is a recent bullish signal coming from the Ergodic Indicator. In this case, the entry if using the bullish engulfing formation would be at the third candle and the fourth if the Three Outside Up pattern. The stop-loss is at the DS1 level, and the take profit is at DR1.

 

Please note: Try this strategy on a demo account first before you use it on a real money account. When you feel comfortable after a few weeks then you can switch to a real money account. On a real money account we suggest that you risk only between 0.5% and 2% per trade.

 

Download the complete system description and the files here:

FREE Pivot Scalping with Candlestick Patterns Strategy

Download the FREE Pivot Scalping with Candlestick Patterns Strategy for MT4.

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