Pivot Point-heavy Trading on Trade Rush

I went back to some USD/CHF trading on TradeRush this Tuesday (August 27, 2013), as that asset gives me the best payout I can find on standard high/low options. As the title to this article suggests, I relied heavily on pivot points in my trading today and several of these levels were visited on the USD/CHF. They really do act as strong guiding features in my trading by helping to determine where price might go and potentially reverse, or show some type of sensitivity at the very least.

My first trade came down at the 0.92132 support 1 level. This price acted as support just after 1AM EST and I expected that it would likely hold again if price action should support another bounce. On the re-touch on the 1:50 candlestick, price bounced off and formed a long doji candle, which is commonly indicative of market indecision and hence potential reversal. Therefore, I took a call option on the touch of 0.92132 on the 1:55 candle. Being this was TradeRush, I was using 15-minute options here, so this trade closed on the 2:10 candle (i.e., starts at 2:10, ends at 2:15), and wound up as a six-pip winner.

The retracement from the bounce off support 1 went for about seven pips. That doesn’t seem like much, but in such a low-volatility time period, a seven-pip rebound was good enough to trade back into several recent areas of minor resistance.

As a result, given the retracement was sufficiently strong, I continued to keep support 1 as an area to consider call options going forward. Sure enough, on the 2:20 candle, price touched and rejected 0.92132 again and set up a call option on the touch of the level on the 2:25 candle. This trade went through a lot of drama and went both ways many times. It fell through right away, before wicking back up and closing at 0.92132. It fell hard again on the 2:30 candle, saw a strong bounce on the 2:35, before spending some time ITM on the closing candle before losing by about two pips.

For just over a half-hour period starting on the 3:45 candlestick, price experienced a large unexpected drop before reversing around 4AM EST and picking up forty pips in about twenty minutes. There wasn’t any news at this time outside of German IFO survey data at 4AM (economic sentiment index), but that’s a very minor event and not enough to effect the market in that way, and the move started before it regardless. I checked other pairs to see what currency seemed to be the one affected. The EUR/USD and EUR/JPY both dropped by about fifty pips. A very USD-heavy pair like the USD/CAD only rose about twelve pips. So clearly it was probably some European bank likely dumping Euros before European market hours and the effect of the transaction was being felt throughout the forex market given it’s all intertwined and correlated to varying extents. It’s rare that something like this happens, but fortunately I wasn’t in a binary trade at this time.

Once the market finally started leveling out, I began targeting put options at the daily pivot point of 0.92293 and call options back down at the 0.92132 support 1 level. A line of resistance did form around 0.92233 right around 4:30AM EST and it was tempting to take a put option there. But recognizing that the trend was up and had seen a lot of recent upward momentum, in addition to the fact that a test of the daily pivot seemed likely, I decided against a put option. It ultimately turned out to be a good decision.

The market came less than a pip shy of testing the daily pivot before coming back down to support 1 (0.92132). By the time price hit support 1, the market pattern seemed to suggest a breach of 0.92132. However, just by watching the chart it didn’t seem like the market had the energy to do much of anything. Once it did touch 0.92132 on the 6:10 candle, it bounced off the level by about four pips on the following candle before re-touching on the 6:20. Given I was only looking at about a five-minute trade at this point I decided to get in for a short bounce. So I took a call option at 0.92132 for the third time today and had a two-pip winner by expiration.

Price did open and close below support 1 on the 6:40 candle, and although I expected price to continue falling, it stayed surprisingly buoyant and spent the better part of the next two hours ranging back up between support 1 and the daily pivot. The USD/CHF did, however, end up below its support 3 line for the day after shedding over forty pips near the U.S. market open.

But overall, I was 2/3 ITM today and I can always be happy with a day like that. And, of course, no fancy strategy techniques were applied. This was one of those days where no real support or resistance cleanly set up just from the price action or price history alone. But I was able to use the pivot points to give me a better idea of where the market could go be going and what could happen when it gets there. For that reason, I’m a strong believer that pivot points are probably the most effective binary options indicator for short-term/intraday trading, at least for those who like to rely on support and resistance as the general basis of their trading.

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