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Dear Friends,
Welcome.
Its no wonder how a successful trader, is successful always and everytime.
Because his fundamental knowledge is STRONG and he keeps learning and refreshing them day in and day out.
In order to begin our successful trading, we need to strengthen our fundamentals first.
Fundamentals include study of trends, chart patterns, various technical indicators and finally a good trading strategy.
I will try to post these fundas one by one so that everyone especially beginners keep visiting the thread to refresh their fundas.
As the thread becomes voluminous, I will try to edit this post to include various topics covered in this thread so that we can have ready reckenor instead of going through allaround.
ADX
MACD (Just scroll down it is discussed in this same page)
Moving Average crossover (Just scroll down it is discussed in this same page)
Pivot Points (It is discussed in this same post, just scroll down)
Relative Strength Index (RSI) (just scroll down it is discussed in this same page)
Some tricks of fibonacci can be learnt here
http://www.hardrightedge.com/wheel/hrefibtricks.htm
Is it make a sense?
Fibonacci trading strategy on a daily basis. Look at two key retracement lines: the 61.8% and 50% fib retracements. Call this zone the "hot zone". Pay close attention when prices retrace or pullback to this zone.
Uptrend strategy: In an uptrend, Let prices to retrace below the 50% fibonacci retracement but close above the 61.8% retracement. If the hot zone acts as a key support zone, enter a long position with a 3-5 tick stop below the 61.8% retracement line. Exit most of position at the previous swing high.
Downtrend strategy: In a downtrend, let price to retrace back to the 50% fibonacci retracement line but not close below the 61.8% retracement. Look for the hot zone to act as a key resistance level. Enter a short position using a 3-5 tick stop above the 61.8% retracement. Exit most of position at the previous swing low.
Just remember this: 61.8% for an uptrend & 50% for a downtrend. These are the two main levels.
My humble request to seniors to add and share their views on the indicator if any changes/improvements are needed.
Todays post is :-
Pivot Point Trading
You are going to love this lesson. Using pivot points as a trading strategy has been around for a long time and was originally used by floor traders. This was a nice simple way for floor traders to have some idea of where the market was heading during the course of the day with only a few simple calculations.
For beginners I would suggest this link before going further what I am going to say
http://www.traderji.com/day-trading...-risk-reward-ratio-risk-less-profit-more.html (Thanks to Radha55)
The pivot point is the level at which the market direction changes for the day. Using some simple arithmetic and the previous days high, low and close, a series of points are derived. These points can be critical support and resistance levels.
The pivot level and levels calculated from that are collectively known as pivot levels.
Every day the market you are following has an open, high, low and a close for the day (some markets like forex are 24 hours but generally use 5pm EST as the open and close). This information basically contains all the data you need to calculate the pivot levels.
The reason pivot point trading is so popular is that pivot points are predictive as opposed to lagging. You use the information of the previous day to calculate potential turning points for the day you are about to trade (present day).
Because so many traders follow pivot points you will often find that the market reacts at these levels. This give you an opportunity to trade.
For Pivot calculator if you like then visit the following site(I personally use it on regular basis) :-
http://www.calloptionputoption.com/opivotpointcalc.html
Just by having the previous days high, low and close you eventually finish up with 7 points, 3 resistance levels, 3 support levels and the actual pivot point.
If the market opens above the pivot point then the bias for the day is for long trades as long as price remains above the pivot point. If the market opens below the pivot point then the bias for the day is for short trades as long as the market remains below the pivot point.
The three most important pivot points are R1, S1 and the actual pivot point.
The general idea behind trading pivot points is to look for a reversal or break of R1 or S1. By the time the market reaches R2,R3 or S2,S3 the market will already be overbought or oversold and these levels should be used for exits rather than entries.
A perfect set up would be for the market to open above the pivot level and then stall slightly at R1 then go on to R2. You would enter on a break of R1 with a target of R2 and if the market was really strong close half at R2 and target R3 with the remainder of your position.
This all looks pretty straight forward.
Unfortunately life is not that simple and we have to deal with each trading day the best way we can.
There are loads of ways to trade using pivot points but I shall walk you through a few of them and discuss why some are good in certain situations and why some are bad.
The Breakout Trade
At the beginning of the day we were below the pivot point, so our bias is for short trades. A channel formed so you would be looking for a break out of the channel, preferably to the downside. In this type of trade you would have your sell entry order just below the lower channel line with a stop order just above the upper channel line and a target of S1. The problem on this day was that, S1 was very close to the breakout level and there was just not enough meat in the trade. This cab be a good entry technique for you. Just because it was not suitable this day, does not mean it will not be suitable the next day.
The Pullback Trade
This is one of my favorite set ups. The market passes through S1 and then pulls back. An entry order is placed below support, which in this case was the most recent low before the pullback. A stop is then placed above the pullback (the most recent high - peak) and a target set for S2. The problem again, on this day was that the target of S2 was to close, and the market never took out the previous support, which tells us that the market sentiment is beginning to change.
Advanced
As I mentioned earlier, there are lots of ways to trade with pivot points. A more advanced method is to use the cross of two
moving averages (post on moving averages will follow shortly)as a confirmation of a breakout. You can even use combinations of indicators to help you make a decision. It might be the cross of two averages and also MACD must be in buy mode.
When the market passed through S1 and then retraced to the S1 line again. It then formed a channel. At around this time we had a cross of the averages, MACD signaled buy and there was a breakout of the channel line. This gave a great signal to go long with a target of the original pivot line.
Mess around with a few of your favorite indicators to help determine an entry around a pivot level but remember the signal is a break of a level and the indicators are just confirmation.
We haven't even got into patterns around pivot levels or failures but that is not the point of this lesson. I just want to introduce another possible way for you to trade.
Good Trading
Yours
veluri1967
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