Pivot Trading Technique Strategy For MT4

Pivot Trading Technique 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 Trading Technique Strategy For MT4 is a pure price action trading method that relies solely on standard daily pivot point levels. With this system, trades are taken based on the price's position relative to the pivot levels, and each level that price would breach has a corresponding action for the trader to take.

This article offers two things: a brief background on what pivot points are and specific rules for trading this system properly.


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Pivot Points Explained

One way to think about pivot points is that they are layers of support and resistance derived from the previous session's price data and then plotted using a horizontal line on the current session. The main pivot point is just the average of the close, high, and open of the prior period. And the other levels, which extends typically up to three on either side, are generated using the main pivot point.

Pivot points are an excellent way to approach price action trading. It is a way to establish key support and resistance levels that the market often respects throughout the day.



Adding Indicators

Pivot points are usually paired with an indicator to support a trade setup. Indicators can add merit to a long trade elicited by a rebound on one of the support levels or a short setup when its resistance levels reject the price. 

Such indicators, like the RSI, Stochastic, MACD, or even Bollinger Bands that delineate bands representing price extremes, can supplement trading pivot points.

 

The Pivot Trading Technique Strategy For MT4

But as mentioned, this system contains no indicators, so it is almost equivalent to naked trading except that candlestick patterns are irrelevant in much of the trade setups. The perfect description of this system is that it is purely price action. In fact, it does not even rely on the underlying trend as a trade filter.

What matters most in this strategy is the pivot levels, and the next section discusses explicit scenarios with the guidelines for trading each of them.

A few essential pointers to grasp about this strategy are the following:

 

    1. It applies to the 15-minute, 30-minute, and 1-hour timeframe. 

    2. While there are no indicators to aid the pivot points, a pivot point indicator should be installed on the MT4 to map out the chart's pivot levels.

 

First Scenario: The price is between PP and S1

With this first scenario, two things could happen that warrant a trade. The first one is a breach above PP, and the position to take is a long trade. The other scenario is a breach below S1, and that would incite a short trade.


In the example above, the price of Gold started the day trading above S1 and below PP. When the price broke the PP barrier, a buy trade was triggered. The initial profit is a few pips above R1, which the trade did not fail to reach as the price made a run-up to the middle of R2 and R1 before reversing course. The stop-loss was set at a few pips above S1.

 

Second Scenario: The price is between PP and R1

When the price is situated in the middle of PP and R1, the same mechanics for trading the first scenario applies. So, when the price makes a clear close above R1, a buy traded is placed, and a sell trade for a close below S1.


The USDJPY pair began Oct. 23 with an opening price between R1 and PP. Four hours later, the price closed just a few pips below PP, which prompted a sell trade. In this case, the primary target was at S1, which was achieved nine hours, and the stop-loss is set at a few pips below R1.

 

Third Scenario: The price is close to pivot (+/- 0.02%)

In this third scenario, the price must respect not more than 0.02% of the pivot level. This means that the trade setups here are predicated by a narrow close above or below a pivot level.

And the two pivot points to pay attention to in this situation are the S1 and R1. For a buy trade, the price should have a close that is not more than 0.02% of R1. On the other hand, a sell trade occurs if the price concludes the session of a value not greater than 0.02%.

The screenshot of the USDJPY shows that the S1 is at 104.62. When the price fell below that support level, it ended up closing at 104.59, which is 0.02% of S1. Therefore, a sell trade was placed. The trade ended up bagging substantial profits as the price’s downturn prevailed till the next day.


The rationale for this setup is to confirm that the price is on course to start trading beyond a pivot level and allow for more room for the trade to move. If the distance of the close is too far from the pivot point, there is not much room for the price to traverse from one level to another.

 

Fourth Scenario: Between R1 and R2/ Between S1 and S2

If the price is trading between R1 and R2, a buy trade is signaled by a break above R2. This indicates that the momentum is exceedingly bullish, and this scenario bets on the price extending that momentum. A sell trade would only occur if the price closes below the pivot point and not R1. 

The thing to remember here is that the price does not have to start the day within R1 and R2. Any time the price trades above R1 and then breaches R2, there is a greater chance that the momentum will be sustained up to R3.

With the sell setup, the same rules are used but in reverse. So, instead of breaking the R2 level, it will be S2 for a sell trade.

In the example above, the price was below the PP level and made its ascent past R1 as the day went on. After its initial break above R1 on the hourly chart, the candle after it also advanced further and moved past R2. This offered an opportunity to buy the USDCHF pair and capture profits beyond R3. As with the scenarios before this, the stop-loss is located at the next level, either above or below the entry. In this case, it is R1.



Fifth Scenario: Between R2 and R3/ Between S2 and S3

For this last and final scenario, the rules for trading the pivot levels between R1 and R2 or S1 and S2 applies. The price must first be trading within R2 or R3 for a buy setup and S2 and S3 for a short position. The signal for a trade is if R2 or S2 is broken.


The EURJPY started Nov. 6 just between PP and R1 but quickly gained bullish strength and obliterated all three levels in quick succession. The close above R3 is what to look for, and once that is in play, a buy order is placed. Conversely, a sell trade is placed if it is the S3 that is broken.

Now, an initial target here might be unapparent since the indicator only provided up to three resistance areas after the main pivot point. So, one technique to set a primary profit target is to follow a 1:1 risk to reward ratio. Since the stop-loss was established at the R2, the number of pips from the entry to the close is the initial target.

 

If you trade on a real money account then we suggest that you use a conservative risk per trade like 0.5% to 2%. However, we recommend that you first trade the system a few weeks on a demo account with paper money.

Download the complete system description and the files here:

FREE Pivot Trading Technique Strategy

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