In today’s article, I will show you guys on how we can scalp the forex market effectively using pivot point but before we proceed, I suggest you read about “How to Be Profitable in Forex Using Pivot Point”.
In the previous article, I showed you guys how we can calculate the pivot point using the formula. In today’s article, we will use an automated pivot point (that is an already calculated pivots point) from trade view you can as well get some indicators that will aid you guys in plotting the lines from the code section in Mql5 official website.
Remember that I said the pivots points are levels that serve as Resistance and Support zones. So we expect price to respect each of these zones, these zones are classified into PP, S1, S2, S3, R1, R2, R3- where the PP stands for Pivot Point, S1-S3 represent Support 1, 2 and 3 and R1-R3 denotes Resistance 1, two and three.
CHECK OUT: What Are Indices in Forex
What Is Scalping In Respect to Forex Trading?
Scalping in respect to forex trading is a type of trading method where a trader places some positions in the forex market for a shorter period of time and exit immediately when a little profit or loss is made.
Most traders scalp the market blindly without a scalping (trading) strategy. We will call this strategy the scalping pivot point strategy. In addition, I will show you ways on how to go about it.
Scalping Pivot Point Strategy
This strategy is mainly for those who are scalpers and have found (discover) there trading methodology or strategy so if you have done so let’s continue if not, then you need to go over our educational series and find the best strategy that suit your psychology and daily live.
Hope you know what “scalpers” does in the forex market, they “hit and run”, and that is take a little profit and are off from the market, so we will be using the same tactics here.
However, before we proceed, let us consider the following:
- Scalping is very risky mode of trading
- MONEY MANAGEMENT is a MUST, if you have a $100 I will suggest you either deposit more or trade with a lot size of 0.01 and do not open more than 5 trades at once.
- STOP LOSS and TAKE PROFIT are recommended but depends entirely on the trader, if you will leave your positions running in the forex market, then it is a must you use STOP LOSS and TAKE PROFIT, else if you will monitor your trades manually then it’s can be optional. Nevertheless, for “capital protection” sake, I suggest you use them.
- If you are using STOP LOSS and TAKE PROFIT then your win-loss ratio should be 1:2 minimum that is, if you place a STOP LOSS of 10pips, your TAKE PROFIT should be 20pips.
Things to Note:
- Scalping with this method gives you an edge in the market
- YOU SHOULD PAY VERY CLOSE ATTENTION TO THE NEWS AS THEY CAN INFLUENCE THE OVERALL DIRECTION IN THE MARKET.
- Keep in mind that we are targeting just a small amount of profit or loss and then we are off for that day.
- The thick black lines on the charts below indicates the point we entered into the market and the thick red lines on the chart below shows where we exit from the market.
- For educational purpose, we did not use STOP LOSS in the examples below it is assumed that we were on the trading terminal to monitor it manually.
Do not forget to read : Do brokers Trade against their clients?
The first example will be on USDCHF with a 30 minutes time frame and a classical pivot point. I decided to use a live market data to show you guys this example.
PLEASE CLICK ON THE CHARTS TO ZOOM IT FOR A BETTER VISUAL QUALITY
From the chart above, when the forex market opened and we saw price trading below the Pivot point many people would have open a sell, which they would have made profit from but I decide to look out for a long position.
Also, remember DO NOT open place either your pending order or market order at exactly on any of the pivot levels always give some few pips space either like 5 pip spacing. This is to avoid false break out.
Example 2 will be on EURUSD, on 30 minutes time frame with the same pivot point as with the chart above.
In this example, I showed an area of false breakout happened that is why I said we should always give a few pip spacing before placing our orders into the market.
Here, I showed two possible ways we could have entered into the market. Do not forget that this is a live market so not all the candlestick has formed yet. I thought this would be a better way to show traders the outstanding performance of this “Scalping Pivot Point Strategy”
NOTE: When the market is thin, that is when the candle sticks are not moving in a definite direction and are in the same range just keep it in your mind that a “big move” is coming soon.
The reason why I would have gone for a long position instead of shorting that pair is that price would have likely hit or break through R1 (resistance 1).
Moreover, most times price reverses around the PP – Pivot Point.
The example below is the pair USDJPY, 30-minute chart with a classical pivot point
If we had place a trade on this chart, it would have been a loss for us. I know must of you are shocked but that’s the truth not every day is meant to be a “profit” day some days we just take what the market offers to us even it if it includes a loss and we take a bow for the next day.
In my time zone (GMT+1), the Asian session is from 11 PM to 8 PM. I am asleep and will probably wake up by 6PM (around Asian Closing Time) and to trade during this time is under probability.
However, assuming I was awake to take the trade. I would have placed a sell order below the S1 and from the current candlestick formation, it would have been a bullish traded – so either way, it would have been a loser or by the closing of that day a winner who knows?
Nevertheless, for people, who are awake during the Asian session can still trade.
NOTE: when price is near any of the levels (PP, S1, S2, S3, R1, R2, R3) do not place any trade as price might likely respect those levels or not.
This example will be on AUDUSD with the same 30-minute time frame and the classical pivot point
This would have been a win-win trade for both the bulls and bears because assuming you placed a sell or a buy you would have still make your money but with the previous formation of the candlesticks, I would have taken a sell position.
This is the end of the teaching.
In summary, this is not a loss or fail prove strategy either is it the HOLY GRAIL, just like any other strategy out there, it requires constant hard work, dedication and constant practices.
The advantage of using pivot point is that you will be able to identify which level price is likely to retrace, reverse, or break through.
No one can see into the futures and as such, there is bound to be mistakes; mistakes make us human. That is why I earlier mention of consistent practice. This will aid you in being to know how a certain pair reacts around any of these levels.
I will recommend you practice with this strategy on a demo account for a total number of 100 executed trades that Is, use this strategy and place up to 100 trades on the demo account before evaluating its performance. This will help in determining whether this strategy is suitable for you and whether it is profitable for you.