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Swing Trading Strategy Using Pivot Point
In this article, I will discuss the Swing Trading Strategy Using a Pivot Point. Please read our previous article discussing the Central Pivot Range (CPR) Trading Strategy, i.e., Price Action Trading Using CPR.
Why Swing Trade?
Swing trading is trying to capture upswings and downswings in stock prices. Swing Trading is a strategy that focuses on small profits in short-term trends (momentum trading). The profit might be smaller, but if done consistently over time, they can compound into excellent returns. Swing Trading positions are usually held for one day to a few weeks.
There are various types of entry systems to take swing trade, like
- Price action with Pivot breakout (unique)
- Supply and demand trading
- Support and resistance trading
- Any indicator-based (moving average/macd /rsi etc.)
Swing Trading Strategy using Pivot Breakout and Price Action
- Pivot point breakout strategy can use any time frame from intraday to investment
- One can use the 30-minute chart to find out swing trade trades.
- I focus on buying strategy using pivot. But one can use it on the sell-side if trading in derivatives where overnight short is possible.
Why Pivot Breakout with Price Action?
Benefits of PIVOT(MR1/WR1/WR2) Breakout Trading Strategy:
MR1=MONTHLY R1 PIVOT
WR1= WEEKLY R1 PIVOT
WR2= WEEKLY R2 PIVOT
BELOW IS THE DAILY TIME FRAME OF A STOCK
There are several benefits to trading breakouts. For example
- Momentum is with you – Trading breakouts allow you to enter your trade with momentum at your back
- Catch big trends – If you were to trade pullbacks, sometimes it may never come. But with breakouts, you never have to worry about missing another market move.
The Demerit of Breakout Trading Strategy:
False breakout or trap
When should we avoid trading breakouts?
- Do not trade breakouts without a TIGHT TRADING RANGE (consolidation) before the breakout.
- Do not trade breakout when the break is set against the dominant pressure.
For Breakout price action trading strategy, click here
Condition of Pivot Breakout Strategy
Bullish Trade:
- When an index in bullish momentum takes a long side
- UPTREND MARKET STRUCTURE (trade with the trend). For the trend filter, use below two conditions
- PRICE ABOVE ALL EMA (20,50,100,200)
- Price Above Monthly & Weekly Pivot point
- Stock is Breaking out any Pivot point (Monthly R1 or weekly R1, R2) after any consolidation (will discuss below)
Stock Selection
- Manually
When to Buy:
- Breakout OF pivot (monthly R1 or weekly R1/R2) with high volume in lower time frame says 5/10 minutes
- Or breakout and test of pivot with low-volume
Stop Loss:
- Day low (closing basis). If it does hit on breakout day, then wait for the daily closing basis
- The trail stops loss using a swing pivot
Target
- Next weekly pivot (R2/R3 IN bullish trade)
Pullback and R1 breakout
What are Pullbacks and the Psychology behind Pullback?
A pullback is a price movement that moves in against the CURRENT trend. It is a temporary price movement before it resumes in the main direction. Pullbacks are sometimes referred to as price Correction or retracement.
- The hope of comparison is to find the top or bottom of weakness in price move by the novice.
- If the pullback is sluggish, contra traders will lose hope, while bullish traders will regain confidence.
Benefits of Pullback Trading Strategy
There are several benefits of the Pullback Trading Strategy. Some of them are as follows:
- Trading pullback lets you have a tighter stop loss as your trade location is good, and this gives you a better risk to reward
- From a psychological standpoint, it’s easier to pull the trigger as you’re buying high and selling low
Where does the Pullback end?
Here are some of the guidelines for finding the key-level
- Towards previous resistance turned support
- towards dynamic support
- trend lines
- Towards a Fibonacci retracement
For more about the Pullback price action trading strategy, click here
- PB TO ANY KEY SR (as discussed above where pullback ends) AND FORM ANY BELOW PATTERN (STOCK SELECTION) manually check for pattern and price action
- Wedges
- Flags
- CHANEL
- DOUBLE BOTTOM
- THEN BREAK OF WEEKLY R1 (price above 20ema)
- SL BELOW day low closing basis or if not broke current day, then wait for daily closing basis
- TARGET next pivot(R2/R3)
Pullback to 20ema
A pullback to the demand zone
BULLISH FLAG WITH WEEKLY R1 BREAKOUT
VCP with Pivot Point Breakout:
First of all, what is VCP (volatility contraction pattern)? The price moves from a period of low volatility to high volatility
- After a strong impulse move (volatility increased)
- Then, the price goes sideways (volatility contracted). If you want to enter trades during a low-volatility period. it gives favorable risk-to-reward on trades, and stop-loss tends to be SMALLER
The basic characteristics of the pattern are that stocks in long-term up trends take rest (pause and consolidate) as some holders exit their positions, and the stock is accumulated again by buyers in the market. The VCP chart pattern can provide opportunities for STRONG breakouts and be used across any time frame.
Some VCPs are
- Triangles
- Ranges [Rectangles]
- Base
- Cup & Handle
- Inverse Head & Shoulders
- Bullish Pennant
U can find more details about Chart Pattern. Click Here
How do you find these types of Chart Patterns?
- Manually I have to select and track
Entry
- Breakout of pivot point with high volume in lower time frame says 5/10min
- Or breakout and test of pivot with low-volume
Stop Loss:
- Day low (closing basis)
- SL BELOW DL clbs or if not broke current day, then wait for daily clbs
- Why? If the breakout candle low breaks, then there are no more valid breakout
Target
- Next weekly pivot (R2/R3 IN bullish trade)
- Or trail stop loss
Let us do some example
First, let me show u the naked chart with the VCP pattern. WILL SHOWS THE FULL extension of the chart later
NOW, WITH ALL THE CONDITION
Bullish Trade:
- UPTREND MARKET STRUCTURE (trade with the trend)
- When an index in bullish momentum takes a long side
- PRICE ABOVE ALL EMA (20,50,100,200)
- Price Above Monthly & Weekly Pivot point
- Stock is Breaking out any Pivot point (Monthly R1 or weekly R1, R2)
NOW WILL CHECK THE ENTRY POINT (monthly R1 or weekly R1/R2)
- The marked red circle shows the entry candle
Now, the full extension of the chart
Here are some more examples of both the VCP BREAKOUT AND PULLBACK BREAKOUT ENTRY CHART
In the next article, I will discuss the Darvas Box Trading Strategy. In this article, I try to explain the Swing Trading Strategy Using Pivot Point. I hope you enjoy this Swing Trading Strategy Using Pivot Point article.