Pivots Points levels with Stochastic Cross alert 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 Pivots Points levels with Stochastic Cross alert Strategy For MT4 is a trading method that combines pivot point levels and the Stochastic indicator. It works by detecting a trade setup using a custom pivot point indicator while using the Stochastic cross as the basis for the entry and exit.
This article explains this strategy's rules and presents a step-by-step guide for trading it effectively.
Pivot Points Overview
Pivot points are an uncomplicated way for generating horizontal support and resistance levels on the chart. The main pivot point is derived from the average of the prior session's price metrics (high, low, and close), usually the previous day.
Other levels are created from the main pivot point by using a different calculation. Those levels can stretch up to three levels above and below the main pivot point.
Pivot Point Uses
Aside from serving as support and resistance lines, pivot points have other uses, and it includes the following:
- Trend bias is determined by the price's position relative to the pivot levels, similar to moving averages. Normally, if the price is trading above a pivot point, it is deemed to have a bullish bias.
- Gauging Momentum - The pivot point levels can also function as a way to measure momentum for specific price action strategies. A broken pivot point level can be a good indicator of potential price direction.
- Trade Entries - Pivot point levels can also serve as the trade entries themselves, and it just depends on how the price reacted on those levels. For instance, both a bounce and a break could be excellent trade entries for a pivot point trader.
- Stop-losses and take profit - The layers of horizontal lines that pivot points generate are great areas for terminating trades, either as a loss minimization or profit-taking measure. Stop-losses or take profit orders can be placed precisely on pivot points or a few pips above or below it.
Stochastic Indicator Overview
The Stochastic oscillator is an indicator for estimating the price's momentum. It compares the most recent closing price to its other prices (mainly the highs and lows) over a specified period.
It creates two bands that delineate price extremes. Generally, traders use Stochastic as a gauge for trading a range-bound market; it underpins a trade entry based on its reading. For example, a valid buy trade is signaled by a specific strategy's parameters and the Stochastic supports this with an oversold reading.
How does it aid Pivot Points in this strategy?
For this strategy, the Stochastic is utilized as a combination of an entry and exit strategy, meaning that the Stochastic is the signal for a trade and is also the exit indicator.
In this strategy, a custom Stochastic indicator, much like the Pivot Points, is applied. This version of the Stochastic oscillator only detects crosses and does not display the standard line graph.
A cross is defined by a reading that begins to move away from the extreme level. For example, when both the indicator's lines are below the oversold level (20) and the crosses above it, then that is a bullish cross.
The Pivots Points levels with Stochastic Cross alert Strategy For MT4
Now, the way the system works is the Stochastic signals a trade, and the position of the price relative to the central pivot point validates it. A bullish trade setup is confirmed if the cross occurred above the main pivot point and a sell trade when the cross took place below it.
The custom Stochastic oscillator points out where the cross came about with arrows: it displays a red arrow for a bearish cross and green for a bullish cross.
This system works best on the hourly timeframe since the pivot point levels are based on the previous day's price metrics. And the only indicators needed are the following:
- Stochastic Cross Alert SigOverlay (5,3,3)
- Daily Pivot Points
Long Setup Rules - The Pivots Points levels with Stochastic Cross alert Strategy For MT4
Here are the system's set of rules for long positions:
- The green arrow should appear above the central pivot point (green line).
- A market order is placed upon detecting the cross.
- The stop-loss is placed three pips below the central pivot point.
- The exit is when a red arrow appears, marking the Stochastic shift to a bearish cross.
In the example above, the Stochastic cross alert signaled two long trade setups (highlighted in yellow). The green arrows that mark a bullish cross on the Stochastic in the two examples appeared above the main pivot point line (green line), which was the alert for a buy trade.
A buy trade is then placed as soon as that occurs, and the stop-loss is positioned three pips lower than the main pivot point. The first trade's overall stop-loss was 21 pips, while the trade after that had 11 pips since the entry was close to the pivot line.
And the result was a 50-pip gain for the first trade and a 28-pip gain for the second.
Short Setup Rules - The Pivots Points levels with Stochastic Cross alert Strategy For MT4
Here are the system's set of rules for short positions:
- The red arrow should appear below the central pivot point (green line).
- A market order is placed upon detecting the cross.
- The stop-loss is placed three pips above the central pivot point.
- The exit is when a green arrow appears, marking the Stochastic shift to a bullish cross.
The example above shows one trade setup (highlighted in yellow) that meets the criteria of a short trade: there was a red arrow of the Stochastic cross alert indicator, and it was below the central pivot point. A market order was placed as soon as the signal appeared, and the stop-loss was fixed at three pips above the main pivot line. This trade ended up with about 30 pips of profit from an initial risk of 25.
But as can be observed, the trade went on to trade lower and breached all pivot point support levels in the next few days. In this case, a trailing stop can be placed to capture the rest of the profits once the initial bullish cross appeared. This way, the initial profit is secured and simply makes room for additional gains.
Please note that you should always use a demo account when you learn a new trading strategy. This will help you to avoid financial losses during the learning curve which comes with every new trading system. On a real money account we suggest a conservative money/risk management where you should not risk more than 1% of your trading capital for each trade.
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Partially Automated Trading Besides Your Day Job
Alerts In Real-Time When Divergences Occur
