HOW TO TRADE PIVOT

The pivots can be used in following ways :

1) They can be used along with indicators like RSI or MACD. So when we are in oversold area of RSI,and
the market rallies breaking a pivot high, we can buy with a stoploss of immediate pivot low.

2) Pivots can be used in pure price action way. Once a trend is identified as up/down , take entries and
stops on pivots.

3) Pivots can be used in multiple timeframes. So if we are in uptrend in larger timeframe of say 30 min or
60 min, then we take all long trades above pivot highs on shorter timeframe of say 5 min. All short signals
we ignore as the larger timeframe trend is up.

I have posted the same L & T chart with the areas marked with red and green lines. We should look to be
a buyer above green lines and sellers below red lines. To know where to draw these lines will require some
knowledge of trends and trends change. But without going into finer details , trading in the direction of
larger timeframe trend is the best way to trade as it stacks the odds in our favour.

At times the market does not reverse on 1 divergence but it continues going down for 2 or 3 divergences.
That is why it is necessary that after the divergence the market should show some strength, like breaking
the pivot high, to confirm that the market is responding to positive divergence and is reversing.
Posting a chart of 30 min Nifty Fut April contract ..

The green line is a trend decider line. Once the market pivots above this line and comes back and
successfully tests the bottom and trades above the green line again , that confirms that the downtrend is
over and the uptrend has started.

Pivot high is a point where the market changes the ongoing direction and reverses in
direction at least temporarily. So I consider the point as pivot high if within the next few
bars the low of pivot high bar is cracked AND we get a lower close than the pivot high
bar close....if these conditions are not satisfied then they could be called either Inside bars
or aggressive pivots.
Today I will share an entry technique which is my favourite entry technique for getting into a trend move,
Many times we either miss an entry in a trend move or we get out in between and we want to enter again
with small, predefined and controlled risk.

The chart is attached. Here market was in uptrend, it opened with a gap up and after a bit of correction,
the uptrend resumed and we want a low rish entry in this uptrend.

Here we locate a small pivot low. And our entry in long trade is above high of the bar which is one bar
earlier to pivot low bar provided it is higher than the pivot low bar high, else we go 2 bars earlier.

I have marked 5 places where market gave us a low risk entry shown by blue lines. The stoploss is at the
low of the pivot low bar....and you are hooked into a trend...enjoy the ride.

This is an entry method....it is NOT a stand alone trading system....please use it as an entry method
only.

The method is based on the fact that an uptrend is made up of higher pivot highs and higher pivot lows
and if we keep stops at a pivot low, it will not be hit in a strong uptrend, and if it is hit, it means that the
uptrend is weak and we better get out instread of hanging around in a market which is not trending
strongly. It is based on sound trading principle and hence this entry technique has more than 75-80 %
success rate and is my favourite.....This entry is a great entry for adds even if we are already in trend.
It gives low risk add points.

Mirror image to get into a downtrend..

Exit is much before the stop is hit.It is actually 3rd or 4th bar from the top of the day..

We are in uptrend...so think of going long and getting out...no short trade unless the trend changes, or
the move gets steep or some other criteria

Posting today's Nifty Futures 5 min charts. I have put 2 day VWAP bands which I use a lot for profit
booking, entries, adds etc.

I have marked yesterdays uptrend as well today's downtrend. The uptrend which had started yesterday
continued in the morning so there was a buy right in the first bar of the day. I have not marked the long
trades as they are simple. The levels marked in red lines are the levels where the trend has changed from
up to down.

The first trend change indication came when NF broke 6246....then second confirmation at 6241. The last
and final call for the bears to check in and board the flight was at 6215....after that few more places where
one could have gone short are shown in red.

The upswing is shown in green...downswing shown in red....

See the beauty of VWAP bands...how VWAP proved to be a resistance in the upward correction in
downtrend. Finally the profit taking area is marked in red ellipse in rose band support area.
Posting 2 cases of Early Exits. These are only for illustrations ( as actually there is no sell signal there...)

Point A is a pivot low and when it is broken, we go short at the level marked by red line. Our usual stop is
at a level marked by Black line. Market closes above the PL level in bar B indicating that the breakdown is
a suspect so we cover our short positions at the level marked by Acqua line without waiting for our
stoploss at black line to get hit. This saves on stoploss by 50 % or more.

A word of caution here. It is a method based on the principle that if breakout/breakdown is unsuccessful
indicated by bar closing in the range, then it is wise to exit at earliest sign of trade not working out. But it
sometimes gives false exits and hence needs re-entry.Overall I found this method to suit my mindset of
low stops and high rewards trades. But at times these exits become frustrating ( like anything else in
trading )....so it may not work well for everyone.
I have observed few traders trading pivot method think that for everyday you need a visual pivot to take a
trade. This is incorrect. The method trades minor trends in the direction of visual trend. So when the visual
trend gets defined, we have to trade each minor pivot in the direction of visual trade.

The chart shows that the visual trend changed to up on 24-5-2018. When we start trading on 25-5-2018,
we know that the visual trend is up...so we look for place to buy based on following :

1) Minor uptrend....buy above minor pivot high...our initial stoploss is the immediate preceding minor
pivot low.
2) Look for small consolidation and buy above the consolidation area.

Our first entry is above a small horrizontal consolidation......stoploss level is shown. In case one misses the
first entry, we can have a second entry above a minor pivot high as shown...

The pivot method works best in trending markets. We need to have good trending moves in either
direction. Most losses on this method ( like ny other trend following method ) are when traders trade this
method in sideways markets. Here we are buying breakouts.....so in weak sideways markets, by the time
we buy a breakout, the trend ends...so a trader has to first understand what is the market structure, is the
market trending or sideways...how strong is the trend and then in sideways markets use support
/resistances, VWAP bands previous days high/low, failures at important levels etc.....

How does one know the strength of the trend ? Traders can find that just looking at the chart but few
pointers are as under :
1) Market making very small bars ,failing at breakouts/breakdowns.
2) Market remaining in 2 visual pivots for a long time .
3) Market making bars with long tails but small bodies.
4) Market barely going upto support/resistance levels and that too with great difficulty.
5) Market printing alternate red and green bars, both small bars....
6) ATR of the bar in your timeframe can give clues of the strength of the trend.

Traders by practice know how much move trending market gives in 5/10 or 15 min in nifty and bank
nifty....so if the move is not strong, trade light in quantity and be quick to take profits......in strongly
trending markets one can think of adds and holding till the end but in weak markets ( most of the times
markets show weak trends these days) one has to grab the profits else it will disappear. If the market is
staying in two visual pivots for a long time, then it is a danger sign that the trend is loosing strength.Trade
the full quantity is a strong trend and lower qty in a sideways market....

We have seen that ERLs are not to be used in sideways markets but ERLs can be very effectively used in a
trending market for catching a reversal at an early stage by pivot upgradation......we will discuss how to do
it in the next weekend.

There is only one exception to what is said in the first para above. When the market closes strongly at the
higher/lower end and next day it opens with a gap into the previous days afternoon range, here we need
to wait till visual pivot is formed as the gap changes the supply/demand equation.

Pivot upgrades is one of the most powerful but least understood part of this method. The thread gives
pivot upgrades information with charts/diagrams and we can see the actual example in the crude oil chart
posted above.
When the market closes below the ERL ,the ERL shown by black horrizontal line becomes an operational
ERL . When marker closes above that ERL at point B, point A gets upgraded to VPL. Then at point C the
market closes below the ERL making point B as a VPH...so now we have VPL and VPH very close to each
other and when the market goes above upgraded VPH B , it gives a reversal signal of earlier downtrend.

A word of caution...use upgraded pivots only for entry/exits...for trend identification in larger picture ,go
with normal VPL/VPH....

The pivot upgradation gives a good entry into a potential uptrend at very near to the bottom with close
stoploss....

Use this when the market has an extended move and we are expecting a reversal...not to be used when
the move is just starting and in sideways moves...

Smart_trade