It is difficult to say how justified this or that construction of levels, which are psychological marks, where the price may behave as it sees fit: it will unfold or pierce:
- Breakdown of Pivot, Fibonacci, resistance or support levels can mean the birth of a strong trend going to the next target levels, as well as inertia, after which a correction will occur.
- Reversal from levels can mean returning prices from overbought and oversold areas to a state of equilibrium. Or it may mean that large market makers specifically reached the price to psychological levels, where many people have stops, “cut hamsters” and again will push the price up.
In other words, trading at Pivot levels and other levels, the trader has a 50% chance of earning: either earn or not. We do not in any way say that level strategies do not work. On the contrary, below we consider one of these strategies. But we emphasize that the market is multifaceted and ambiguous. One technical analysis and levels for success is not enough. It is important to understand what drives the market: a real fundamental factor, speculation or artificially inflating a bubble.
Pivot Levels: the essence and principle of earning
To begin with, recall what a candle is:
- The body of the candle: the opening and closing prices. The closing price is higher – a rising candle, lower – a falling one.
- Candle shadows: the high and low prices for the current timeframe.
Pivot levels (PP) is an indicator of price reversal points used to determine resistance and support levels in short-term trading.
The formula for calculating levels:
- R1 (resistance 1): (P * 2) – min;
- R2: P + max – min;
- R3: max + 2 * (P – min);
- S1 (support 1): (P * 2) – max;
- S2: P – max + min;
- S3: min – 2 * (max – P).
P = (max + min + close) / 3, where max and min are the maximum and minimum price, close is the close price.
In our proposed strategy, we will focus exclusively on the third levels of support and resistance. Its essence will be to earn on the breakdown of levels, for which the indicator W1 Pivot will be used. You can order it by email by contacting us in the comments after the review.
- The timeframe is H1. Thanks to the combined indicator, the interval can be taken long.
- Asset – any currency pairs.
- W1 Pivot settings: discretion level colors, fortsize = 10, labelShift = 0.
Conditions for opening long and short positions:
- Buy Stop is set to WR3 + N points. N is the coefficient that should be chosen individually for each currency pair. The more volatile a pair, the greater its value may be. For volatile pairs – 20 points, for exotic – + 5-10 points.
- Sell Stop is set to WS3 – N points. N is the same parameter as in the first case.
We recommend to put the stop loss for volatile pairs at the level of 50 points, “exotic” at the level of 30 points. Invalid orders are removed at the end of the week.
Loss-making transactions are rare, but the number of signals is also small. Therefore, the strategy is long-term and it is better to work immediately with 5-10 currency pairs. We test strategy and share comments!