Scalp Forex Breakouts with Pivot Points (based on dailyfx article)
Pivots can help easily identify support & resistance levels
Traders should monitor R4 and S4 values for breakouts
As with any strategy, identify areas to exit your position
Trading breakouts is one of the most popular strategies available for
scalpers. When a major level of support or resistance breaks, this
momentum can provide scalpers opportunities to capitalize on new orders.
Scalping with Pivots
Pivot points can be great ways to identify key levels of support and
resistance for the day trader. There are many types of pivots we can use
and in today’s example, we will use camarilla pivots added to today’s
AUDUSD graph seen below. Key levels of resistance are denoted with a
green line (R1-4) while key levels of support (S1-4) are denoted by a
red line.
In an uptrend, such as the AUDUSD chart below, traders will want to
watch for a breakout above resistance. As R4 is the last line of
resistance this line is an opportune place to look for potential market
entries. Let’s look at a sample setup.
Breakout Entries
Once you have identified support and resistance, it is time to plan your
entry. The most common methodology of trading breakouts is to set
entries to buy a currency pair, in an uptrend, when resistance is
broken. As well, traders can look to sell levels of support in a
downtrend as price breaks to lower lows. This can be done using entry
orders to enter the market as soon as price moves beyond one of these
values.
Market orders can also be used to trade breakouts. This method is
normally preferred by traders who have time to remain in front of their
trading console and monitor their positions. Traders using market orders
may often wait for one candle close to confirm a breakout prior to
entering into their trade. Regardless of the entry method preferred, the
objective is still the same.
Managing Risk
The last portion of any active trading strategy is to manage risk. When
using pivot points, these pricing levels become fairly intuitive. When
buying a breakout over R4, trades can be managed by placing stops under
the R3 value. In the event that prices begin mobbing back through
earlier levels of resistance, traders will want to exit the market at
the first available convenience.
Once a stop has been placed, traders can then extrapolate their profit
target. A simple methodology is to extrapolate a positive risk reward
ratio of a traders choosing. This ensures in the event that the trade
moves favorably profits are maximized, while cutting losing positions as
quickly as possible.