Pivot points can be used as entry points for new trades or as a close signal for the existing ones.
There are different types of pivot points with a different mathematical formula or simply using previous highs and lows.
How to trade Pivot points
The following scenarios work with the Traditional Pivot Points
For the Camarilla version normally R and S are closer to the price and we use a different setup.
Trading setup #1 (Not so strong trend): Open price is between R1 and S1
- Long when the price moves back above S1 after going below S1. Target will be P, R1, R2, .. levels.
- Place Stop loss at the S2 level
- Wait for the price to go above R1 and then when it moves back below R1 again, go short.
- Profit target will be P, S1, S2 S3 levels and stop-loss above R2
Trading setup #2 (Normally very trendy bullish markets): Open price is between R1 and R2
- Buy or go long when the price moves back above R1 again after going below R1. Target will be R2,
- Place stop loss at R1
- Wait for the price to go above S1 and then when it moves back below S1 again, sell or go short.
- Target will be S2 levels, and the stop loss will be above P.
Trading setup #3 ( Very trendy bearish market ): Open price is between S1 and S2
- Wait for the price to go above S1 and then when it moves back above S1 again, then go long.
- Target will be P, R1, R2 levels, and stop-loss below S2.
- Wait for the price to go below S4 and then when it moves below S2, go short.
- Place stop loss above S1.
Trading setup #4 (High probability for a trend reversal or correction): Open price is above R2
- Buying can be risky at this level. Wait for the price to go below R2.
- As soon as the price moves below R1. go short.
- Place stop loss above R3. Target S1 , S2 or P
Scenario #5 (High probability for a trend reversal or correction): Open price is below S2
- Selling could be risky at this level as the price has opened with a big gap down.
- Wait for the price to go above S1.
- When the price moves above S1, buy
- Place a stop loss of S2. Target R1, R2, and P.
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