PIVOT POINT TREND TRADING by KISS (Keep it simple stupid)
The rule set in stone: Only thing constant here is change
USE FIRST DEGREE PIVOT POINTS AS OUR BASIC BUILDING BLOCKS.
TIME PERIOD - DAY TRADING
TIME FRAME: 5 minutes. CANDLE STICKS
The emerging trend, patterns etc clearly visible
Can upscale to higher TF or go down to lower TF if need be.
NO ACTION TO BE INITIATED BEFORE CANDLE IS COMPLETE
INITIATE TRADES with LOW STOP LOSSES, typically <~20 points
USE PIVOTS TO IDENTIFY TREND LINES.
Dont use Volume bars here routinely
First 5m Candle is our first reference point. (5mHi or 5mLo). Candle1
Remember all sentiment generated after 3.30PM of last trading session till
Todays opening will be reflected in first few bars. So be very careful here
Watch Candle1 - If the range is ~20 points (Gap opening or within previous close)
Long above 5m HI + 1tick
Short below 5m Lo 1tick
If first 5m Candle is wide range bar > 30/40
Wait for first pivot to form - PH1 or PL1
If first Pivot is PL- draw TL from this to low of Candle1
Sloping up - First Up trend
if first Pivot is PH- draw TL from this to Hi of Candle1
- Sloping down First Downtrend
If Candle1_Hi PH1 line slants up or Candle1_Lo-PL1 line slopes down - wait for
Second set of Pivots. And then draw TL -- till you get definite trend
E.g. First to form is PL1 then PH1 & then PL2
Connect PL2 & PL1 > upward slant - you get the Up trend
Long > when PH1 is taken out (Candle1 is dis-regarded)
SL is PL1
E.g. First to form is PH1 then PL1 & then PH2
Connect PH2 & PH1 > downward slant you get the Downtrend
Short > when PL1 is broken (Candle1 is disregarded)
SL is PH2
Get in only when you get up or down trend. It wont take long.
Ride the trend till you get signs of REVERSAL
Trail your SL at least 1 previous Pivot
We aim to get in early. So master this part thouroughly
PROFIT TARGETS: Not predefined. Ride the trend as long as it lasts
However, if there is sharp run up -dont hesitate to book profits
If you observe strong reversal signal e.g. wolf pattern , doji stars
Book profits and (take reverse trade- level 2 only)
STALLED: In Up trend: A lower PH than previous caution.
But next PL is higher PL - Its stalling
In Downtrend: A Higher PL than previous caution.
But next PH is lower PH - Its stalling
(If u work with pattern - this would appear as pennant/triangle etc
A humongous Volume Bar - Caution
Long tail Doji or a series of Doji - caution
REVERSAL: Only when next pivot due also breaks the trend
In Up trend: A lower PH than last PH >> lower PL than previous PL
In Downtrend: A Higher PL than last PL >> Higher PH than last PH
Exit the trade.
How to identify STRENGTH of trend:
Imagine/ Draw a vertical line from first Pivot & then the Trend line
If angle between the two is acute typically < 45 degrees
Its a strong trend. (smaller the angle stronger the trend)
If there is sharp run up (more vertical) - Dont hesitate to book profits
Some times next pivot in series appears below the trend line
Is it break in Trend? Wait - look closely
E.g. Up trend PL > HL1 > HL2 --trend line drawn
Now HL3 forms - but below TL --- closure look
If HL3 is higher than HL2 - Up trend intact
If the angle between vertical & TL is less acute, typically > 50-60
It is a pullback or a retracement
Sooner or later Trend will resume.
If there is forceful/ impulsive counter move- position accordingly
What if TIGHT PIVOTS- series of PH-PL-PH-PH forming in
Clusters, sometimes within single bars (Visually more demanding)
- Look at the angle from vertical
If acute- may be nearing the end of trend
If relatively less acute - stalling or retracement
- Can shift to higher Time Frame and validate the support/resistance areas
Its been seen that reverse trades are not as profitable so can be avoided
Trade in direction of most profitable trend
(Of course there can be exception or you expect strong reversals
By e.g. by identifying Wolfs etc at end of trend- but thats Level 2
Not factoring in right now)
Or you must compulsively trade reversal: Use half of original trade size.
Do take some profits home every day. That should be the aim
5m time frame allows you to see patterns etc why ignore them if you can spot them
E.g. 09/02/24 showed a triangle formation after an initial up trend
Now something big is going to happen. It broke out with vengeance
we knew before hand, we are in strong up trend, so upward bias+
could be and 'add opportunity.
Had it broken down? Exit quickly & can reverse trade.
Then follow Trend rules
if two straight trades end up in loss. WE call it a day. Back to school
INITIAL CAPITAL:
For learners license : Rs 3000/- or Rs.1000/- (if you use Intra day margins)
When you pass the test & get Drivers License:
AS low as Rs. 10000/- (Yes Rs. Ten thousand only) . which would get you one
Mini Nifty lot with enough to spare for margin.
(ROME was not built in a day) . Our Dhirubhai started with only Rs.15,000/-
If you strictly go by rules .. There is profit to be made every day
Infact , we advice you to start small and see the magic of compounding
INSTRUMENT: Nifty Future or Mini Nifty Future
Options : No . They cost same as Nifty future
Can be used for position trades (level 2 or above)
POSITION SIZE: As per account size & risk appetite. Remember here SL is small.
Position would be: Capital * risk / Stop Loss
Capita 1 lac. Risk 2% per trade
Stop Loss ~ 20 points.
Position = 1,00,000 * (2/100) / 20
= 100 shares
That would be 2 Nifty lots or 5 MiniNifty
We would prefer MiniNifty as moves just as Nifty and allows
For staggering of trade size
Our trades will move in staggered manner.
After entry: Divide position into two. E.g. you position size is 3 Mini lots
1. Pilots (2 pilots)
2. VIP (1 VIP)
After trade initiated and it becomes profitable. Only Pilots move ahead to trailing SL
VIP moves to break even and stay put there till end of the day.
On reversal- extinguish the pilots.
VIP doesnt move at all (They will be either eaten by strong reversals or only extinguished at the end of day. They either bring big profits or just get extinguished at break even.
Later on this can be done as 1-2-1 or 1-3-2 style just as a VIP CONVOY moving forward
ADDs: Currantly not done.
However, if impulsive move / Wide range bar in favourable direction (level 2)
Pyramidal adds can be done ( level 2)
As we get a feel of the system & are confident about it, will build more complexity into
the system. ALL THE WHILE STILL REMAINING SIMPLE
PAPER TRADING: A strict no no. What???? Yes a strict NO
Study it off market. There are many charts already here in. Down load them & simulate them
Unless you put youre hard earned money into real action.
You wont feel the emotions of greed & fear.
PAPER TRADING: Brings in a big euphoria with winning trades
You will not perceive the pain & hurt that your losses cause
AND to accept pain gets ingrained in your psycho when you put real money in
Result: You dont mind big Stop Losses. Thats not acceptable here.
CAPITAL PRESERVATION IS PRIMARY AIM
We aim for Risk/reward ratio of more than 1. With small Stop losses that gets factored in
Of course you dont start straight away with all your capital.
First start with LERNEARs LICENSE
Start with RELIANCE CASH Scrip. It moves similar to NIFTY (Use Reliance chart then)
Trade at least 2 cash shares actively. Practice this out religiously. Iron out your trading skills . Online actively (And your losses would be minimal)
We suggest you start with Rs.1000/- and use brokers margin (leaverage)
You will get the feel of leaverage. How it works
Start off then with mini Nifty. And gradually move on.
Its not a bad idea to see main NIFTY Price action & Trade Mini NIFTY.
Other systems are more profitable?
Its not Us vs. Them (them means all except us)
HERE its US.
Strengthen US. >>then>> add them to US >>> US+ Goodies of Them
Remember our Stone rule.
There are patterns , wolfs, market profiles etc & lot more.
We will use them to help us better understand out building block i.e. 5m PIVOT
But thats level 2 & beyond.
Previous reference daily charts can be found at
your friendly neighbourhood indi traders com
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