Trading using two pivots - MT4/MT5 Resources
Chapter 1
Introduction
In this topic, we will discuss a trading system that uses only two pivot levels for trading.
But first, let's define them.
As you probably already know, pivot levels are these support and resistance levels that switch from one category to another based on changes in price. (Example: transition from support to resistance). As an example, I picked a random gold chart on the daily time frame. It doesn’t matter which time frame you use, we can see how on three different occasions the precious metal tried to break above the 993.00 level where the resistance lies. The level was strong at this time, but soon after the price attempted to break out again and succeeded, with the level being used as a leverage point for a nested upward move, with the 993.00 level becoming the pivot level at the time.
Conclusion: A level that turns support into resistance (and vice versa) is a pivot level.
There is always an important question regarding price positioning into a category, namely: range or sideways, and when price strives to move from one direction to another, entering a constant limited range.
Trading using two pivot levels will solve this dilemma.
construction project
For starters, you need to identify the two most important pivot levels (on any given chart). We just need to construct two horizontal lines for this. The ultimate goal of this is to have a system that can define for you in a very precise way whether there is a trend, or a warning of a possible trend shift in the future or entering a potentially chaotic correction phase or a sideways market.
In the example below, for the AUD/CHF currency pair, we have established two key values at the 0.9850 level and the 0.9473 level respectively.
To do this you don't have to focus too much on past price action, I did this in the example above just to highlight and give you a proper understanding of these areas, you need to do this to mark when price action lacks clarity or there are associated support and resistance areas. But these situations are rare.
Now, after plotting them, we get three important areas or deviations as shown below:
1. Upward Bias
If the price is above the pivot with the highest value - the deviation is upward (green area).
2. Neutrality Bias
If the price is between two pivot levels - the deviation is neutral. (gray area)
3. Downward bias
If the price is below the lowest pivot level - the bias is downward. (orange area)
The areas are drawn manually using the indicator in green (indicating upward deviation), gray (indicating neutral deviation) and orange (downward deviation). When using it, you need to install it on each time frame you like, rather than all time frames at once, as the positioning of the pivot level will change with each time frame.
Features
Both upside and downside divergences imply potentially aggressive and even radical moves that could lead to new all-time lows when prices are on a downside divergence, or new highs when prices are on a downside divergence.
When the price breaks through any pivot level and enters the neutral bias, this behavior should be observed with caution, as taking a position in this particular case may bring losses, as the price may correct little, or it may be a false breakout, or even the nature of the correction may be irregular and chaotic.
Just watch the reaction after the EUR/AUD pair breaks through the 1.4848 pivot point. Up and down like a spin.
The advantages of trading only upside and downside deviations include:
- Greater certainty of reaching goals
- With a slightly larger stop loss, price can breathe and consolidate before breaking out into an impulsive trend move
- The risk ratio in the upside and downside bias cases is better than the neutral case
EUR/AUD Uptrend
The move comes after central banks around the world cut interest rates simultaneously, the news is here .
Nasdaq index downtrend
The move came within weeks of the collapse of Lehman Brothers, and here's the news.
Chapter 2 has been created and can now be found in post no.66.
Introduction
In this topic, we will discuss a trading system that uses only two pivot levels for trading.
But first, let's define them.
As you probably already know, pivot levels are these support and resistance levels that switch from one category to another based on changes in price. (Example: transition from support to resistance). As an example, I picked a random gold chart on the daily time frame. It doesn’t matter which time frame you use, we can see how on three different occasions the precious metal tried to break above the 993.00 level where the resistance lies. The level was strong at this time, but soon after the price attempted to break out again and succeeded, with the level being used as a leverage point for a nested upward move, with the 993.00 level becoming the pivot level at the time.
Conclusion: A level that turns support into resistance (and vice versa) is a pivot level.
There is always an important question regarding price positioning into a category, namely: range or sideways, and when price strives to move from one direction to another, entering a constant limited range.
Trading using two pivot levels will solve this dilemma.
construction project
For starters, you need to identify the two most important pivot levels (on any given chart). We just need to construct two horizontal lines for this. The ultimate goal of this is to have a system that can define for you in a very precise way whether there is a trend, or a warning of a possible trend shift in the future or entering a potentially chaotic correction phase or a sideways market.
In the example below, for the AUD/CHF currency pair, we have established two key values at the 0.9850 level and the 0.9473 level respectively.
To do this you don't have to focus too much on past price action, I did this in the example above just to highlight and give you a proper understanding of these areas, you need to do this to mark when price action lacks clarity or there are associated support and resistance areas. But these situations are rare.
Now, after plotting them, we get three important areas or deviations as shown below:
1. Upward Bias
If the price is above the pivot with the highest value - the deviation is upward (green area).
2. Neutrality Bias
If the price is between two pivot levels - the deviation is neutral. (gray area)
3. Downward bias
If the price is below the lowest pivot level - the bias is downward. (orange area)
The areas are drawn manually using the indicator in green (indicating upward deviation), gray (indicating neutral deviation) and orange (downward deviation). When using it, you need to install it on each time frame you like, rather than all time frames at once, as the positioning of the pivot level will change with each time frame.
Features
Both upside and downside divergences imply potentially aggressive and even radical moves that could lead to new all-time lows when prices are on a downside divergence, or new highs when prices are on a downside divergence.
When the price breaks through any pivot level and enters the neutral bias, this behavior should be observed with caution, as taking a position in this particular case may bring losses, as the price may correct little, or it may be a false breakout, or even the nature of the correction may be irregular and chaotic.
Just watch the reaction after the EUR/AUD pair breaks through the 1.4848 pivot point. Up and down like a spin.
The advantages of trading only upside and downside deviations include:
- Greater certainty of reaching goals
- With a slightly larger stop loss, price can breathe and consolidate before breaking out into an impulsive trend move
- The risk ratio in the upside and downside bias cases is better than the neutral case
EUR/AUD Uptrend
The move comes after central banks around the world cut interest rates simultaneously, the news is here .
Nasdaq index downtrend
The move came within weeks of the collapse of Lehman Brothers, and here's the news.
Chapter 2 has been created and can now be found in post no.66.
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