Discriminating Between Quality Pivot Point Set-ups and Non-quality Pivot Point Set-ups

August 29, 2014

The EUR/USD had the pivot level in play in today’s trading. After a non-descript opening few hours, volume entered the market to the point where price took about a 25-pip leap up in about fifteen minutes, the most action seen all day. The market roughly settled around pivot. It didn’t offer perfect resistance, as price climbed above the level by around eight pips and closed above.

But there was no further movement above and the market stayed below pivot for a good hour before coming up once again. It bounced off on the 6:20AM (EST) candle. This wasn’t a perfect trade set-up, but once price hit pivot on the 6:25 candle, I was simply looking for a brief bounce and hold under pivot, given expiration would be at the end of the following candle.

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I did get into the trade slightly above the pivot and nearly to the tops of the candles that had just eclipsed the level after 5AM, forming what could be called the “true resistance level” around 1.3188. This trade did not hold, although it did come close to getting back in favor in the waning part of the trade. But it’s actually been rare lately that I’ve been getting any comeback winners. It seems like all my trades recently have won (or lost) by being in favor (or out of favor) basically the entire time – or being a little bit out-of-the-money in the first couple minutes only. So about a 2-3 pip loss here.

Following, I did have a couple additional pivot considerations. But the pivot wasn’t really the thing in play here. It had been breached a couple times already, and hadn’t really established itself as a resistance level. I always say that you never really want to trade a level in itself. It simply doesn’t offer a strong enough trade. Obviously, if the pivot points were not drawn in on this chart, it would not make very much sense at all to take trades here on the surface. So I decided to pass on these weak opportunities (seen in the image below marked off with the yellow arrows).

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Once again, the market got about as high as 1.3195 before hitting a ceiling and coming back down. Price had recently seen a bit of congestion along the pivot for about twenty minutes in the 7:35-7:50 candles. On the way back down from the high, price had bounced off pivot twice on the 8:10 and 8:15 candles.

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Naturally, I felt this was sufficient evidence to enter into a call option at pivot, so I entered at the level on the 8:20 candle. This went in favor by 2+ pips heading into the closing candle, but wasn’t able to hold above in time to capture the 8:30 expiry and I lost by about a pip.

Naturally, we’re getting pretty close to the common news release time in the United States, which is typically 8:30AM EST. I’m usually done trading for the day at this time, or at least like to be. If I begin at 2AM EST, it usually means I’ve already had a fairly long day. Always check your calendars for important events. For today, it was U.S. personal consumption expenditures, personal income, and personal spending data releases. These don’t affect the market too much. But next Friday will be a big release for this currency pair, in the form of the non-farm payrolls, the monthly U.S. labor data release.

So I was shutout for today, an 0/2 ITM day. But these days happen. Losing a couple trades in a row is nothing to be too discouraged about, even though you might feel a bit empty if they were the only two you took that day. Even worse, you don’t want to “revenge trade” and end up taking another few with even more futile results. But it’s all about how you perform over the long-run, not just a few trades by themselves.