Pivot points are often discussed but not always understood.

[L.C.]

Pivot points are often discussed but not always understood.
I think that the first problem is that sometimes people will expect too much out of an article describing a trading method. When I first started reading on how pivot points worked I tried to apply what I read exactly as the author described.
First problem with doing that is every time a trading opportunity sets up… it will always be a little different. The structure has to be there but it will always look a little different.
I think the best way to learn a new method is to learn the basic structure of the method then watch how it works in a live market.
So please remember that if you are thinking about applying what I write in this text.
I must mention that I find my entry exits on a 30 minute chart. The pivot points I use are based on the daily high low close of the previous day I apply them to my 30 minute chart.
I don’t really look at the pivot points until after I am in a trade. I am always aware of where they are but I don’t expect much of them if they are in the middle of no where. What I mean by that is the pivot points seem to have the greatest affect when they line up with a psychological level or support or resistance or Fibonacci levels.
I have a very specific set of rules for my entry but the focus here is how I use them for profit targets.
I traded the GBP/USD the other day. The S1 pivot point happened to line up around the extension target of a price swing I was trading. This also corresponded with the psychological level of 80. So with all these things lining up together I used that price level as my profit target. Then I leave it alone when the move is over. I don’t chase the price for a little more of the move. Doing that usually results in giving back some of your profit.
Another thing I would like to mention is that when price has been in consolidation you will usually see the pivot points in a very narrow range. If I find a trade during this time I will usually ignore the pivot points because they are too close to help me I will trade to a psychological level as a profit target.
So I think that the best way to use pivot points is to try incorporate them in your current trading method use them as profit targets. remember the price will not always hit the pivot point on the number. It will still work… just use the pivot point as a general area to keep an eye on.
L.C.
udaytrading.com
This article courtesy of http://www.udaytrading.com/
You may freely reprint this article on your website or in
your newsletter provided this courtesy notice the author
name URL remain intact.