Trading strategy: EUR/USD Pivot

Description

The EUR/USD Pivot strategy is a trading strategy based on the concept of pivot points. Pivot points are calculated each day at the start of the day. In order to calculate these points traders use values from the previous day’s trading range.

 

  
Suitable for : EUR/USD
Instruments : Spot forex and forex CFDs
Trading type : Day trading
Trading tempo : Several signals per day on a 30 minute chart
The strategy :
Using NanoTrader Full : Manual or (semi-)automated

 

The strategy in detail

The pivot points are calculated at the start of the day and are valid for one day. The formulae to calculate the points are given below. There is nothing very sophisticated about pivot points. In essence their value lies in the fact that many market participants observe or use them. Given this general interest in the pivot points, they become relevant.

Above the central pivot point there are three resistance pivot points. Below the central pivot point there are three support pivot points. The seven pivot points are calculated as follows:

  
Pivot = (High + Close + Low) / 3
Resistance 1
Support 1
= (2 * Pivot) - Low
= (2 * Pivot) - High
Resistance 2
Support 2
= Pivot + (Resistance 1 - Support 1)
= Pivot - (Resistance 1 - Support 1)
Resistance 3
Support 3
= High + 2 * (Pivot - Low)
= Low - 2 * (High - Pivot)

Around all seven lines based on the pivot points, the strategy draws a green zone (above the line) and red zone (below the line). The edges of these zones are 15 pips above and below the pivot lines.

 

This example shows the seven pivot lines and their respective green and red zones.


When the volatility is low it is possible that the zones overlap. The strategy will not react to signals if the distance between the pivot points is smaller than or equal to 20 pips.

The EUR/USD Pivot trading strategy is applied in a 30-minute timeframe.

When to open a position?

The EUR/USD Pivot strategy uses the SuperTrend as a signals filter. If the SuperTrend is positive only buy signals are accepted. If the SuperTrend is negative only short sell signals are accepted. The SuperTrend is visible in the charts as a blue line. If the SuperTrend is above the price chart the trend is negative. If the SuperTrend is below the price chart the trend is positive.

A buy signal is generated when the market price, after having closed at least once in the green or red zones, closes above the green zone.

 

In this example the market price breaks out of the green zone. The SuperTrend filter (blue line) is below the market price indicating a positive trend. A long position is bought at the market price at the open of the next candle



A short sell signal is generated when the market price, after having closed at least once in the green or the red zones, closes below the red zone.

 

In this example the market price breaks out of the red zone. The SuperTrend filter (blue line) is above the market price indicating a negative trend. A short sell position is opened at the market price at the open of the next candle.


When to close a position?

The EUR/USD Pivot strategy uses a stop and a profit target. Unconventionally the stop is set at 50 pips and the profit target at a lower value, 25 pips. The strategy does not keep positions overnight. A blocker will automatically close all open positions at 22h00. No new positions will be opened before 09h00 the next day.

 

This example shows two consecutive buy signals. A first long position is opened after the market price closes above the green zone. The orders for the 50 pip stop loss (red line) and the 25 pip profit target (green line) are generated automatically. After a while the price goes up and the profit target is reached. A second long position is opened when market price moves above the third green zone. Two candles later the profit target is reached. Both positions are closed with a profit.



 

This example shows two consecutive short sell signals. A first short position is opened after the market price closes below the red zone. The orders for the 50 pip stop loss (red line) and the 25 pip profit target are automatically generated. After a while the price goes down and the profit target is reached. A second short sell position is opened when market price moves below the second red zone. Twelve candles later the profit target is reached. Both positions are closed with a profit.


 

Conclusion

The EUR/USD Pivot strategy uses the well-known pivot points to determine buy and short sell zones. It is a simple day trading strategy which runs at a fairly sedate pace given that it is based on 30-minute charts. An interesting strategy for traders who do not like to be hurried.

 

This screenshot shows a backtest over a relatively short period of 14 months.

Practical implementation

In NanoTrader Full follow these steps:
  • Choose the instrument you wish to trade.

  • Open a chart with the template study "WHS EUR/USD Pivot".

  • Semi-automated trading? Simply activate the TradeGuard+AutoOrder or the AutoOrder function.