The Forex market can be tricky to trade. It can often deceive you into thinking it is either way too hard to trade in or way too easy, and in the long run neither is true. However, if you learn a simple trading method that works, and combine that with sound emotional/psychological self-discipline and good money management, you really can be successful in trading.
One simple trading method that works well is using a pivot point strategy. Pivot points are highly probable price levels based on previous trading time frames. They can help in predicting if a move will be bullish, or if it will turn bearish, and where your take profits and stop losses should be placed. It is all centered on a specific mathematic calculation based on recent prior trading results. The calculations include using the open, high, low, and close of the previous time frame you are trading.
A great thing about this trading method is that it can be used on various time frames. For this article, we will focus on the H1 time frame, but swing traders often use the same principles on the Daily time frame very successfully. Another reason Forex traders like this simple trading method is because it is predictive versus lagging.
Learn this Simple Trading Method
To trade this method you first calculate the pivot point (I’ll explain this later), and its support and resistance levels. Once you have the pivot point calculated, you watch to see where the trade opens at the top of the hour. If the trade opens to the upside then the probability is that your trade will be bullish. If the trade opens to the downside then the probability is that your trade will be bearish. Once you know the direction the trade will likely go, you can set your take profit at the first resistance or support level and your stop loss approximately halfway to the opposite support or resistance level of the pivot point.
The good news with the calculations is that there are a number of pivot point calculators available online for free if you do a search. With these calculators, you simply enter the information from the previous hour, and it will do the math for you. If you use the Daily for swing trading, you enter the information for the day. But with the hourly trading method, you need to enter new information with each hourly trade.
The actual calculations for this method look like this:
Resistance level 3 = high+2*(pivot-low)
Resistance level 2 = pivot+ (R1-S1)
Resistance level 1 = 2*pivot-low
Pivot Point = (high+close+low)/3
Support 1 = 2* pivot – high
Support 2 = pivot – (R1-S1)
Support 3 = low – 2*(high-pivot)
As you can see with the formula, the calculation provides up to 3 support and resistance levels. Statistics show that about 42-44% of the time the trade will actually go beyond the first level of support and resistance. So if you do multiple hourly trades in a day, just setting your take profit at the S1 or R1 (depending on if the move is bullish or bearish), you can trade with confidence, and know at the end of the day, you will have a fair amount of pips.
Below is an example of using the simple trading method.
The blue arrow shows the previous H1 candle. From this the pivot point, as well as S1 and R1 were determined and marked by the red lines. The pivot point is marked with a blue “X” and is the center red line; and S1 is the line below, R1 is the line above. You will note that the new H1 candle (marked by the blue checkmark) opened to the upside, which meant it was likely to be bullish. You can see that it did move bullishly, and passed through R1 up to 1.31192, and it actually hit R2 (1.31191) before pulling back.
If the stop had been at a conservative R1 you would have netted about 7 pips. If it had been set at a slightly riskier R2, it would have netted about 12 pips. Now this doesn’t seem like much, but with even just 2-3 trades like this you could have 20-40 pips in a day. And if you have an account with just $500 in it, but net an average of 100 pips a week, you could potentially make $100,000+ in just a few months with compound trading.
You don’t need to make a large amount of pips to make a large amount of money. You just need to find a simple trading method that works fairly consistently, and work it consistently. Let your money stay in your account for a few months, trading a conservative percentage of your balance, and you will see your account balance grow faster than you could imagine.
A few simple tips for H1 pivot point trading:
- Once your H1 pivot point is set, watch the M15 to confirm the immediate direction and the M5 for the best entrance timing.
- Even when a trade opens to one side of the pivot point, it is common for it to pull back to the opposing direction for a few pips before turning to move in the originally given direction.
- The strength of the market will usually tell you the likelihood of if your trade will move beyond the first support or resistance levels for a bigger take profit.
- If the trading range is getting tighter, you may want to set out for a trade or two as a reversal of H1 direction is likely occurring.
It really doesn’t matter what level of trading you are at. Learning pivot points as a simple trading method can be an asset for anyone looking to make money in the Forex market. Just combine this trading method with self-disciple and good money management, and you are on your way to financial freedom.