Pivot Points can be very helpful when you want to catch the end of a move. I will demonstrate this with an example of my recent gold trade.
Catching bounces – is it worth it
These are set-ups with an excellent risk to reward ratio. It’s easy to open positions with possible 1:5 or higher ratios.
What are we looking for
- price approaches important levels S and R at weekly, monthly or yearly pivot points
- additionally on the plus side – different pivot levels are close to each other (confluence)
When the trend in a given direction persists for a more extended period, the price can finally find support/resistance near the important S and R levels.
Example of gold
The above conditions were met on the gold chart.
First of all, we observed a strong sell-off, which gained strength, especially in the last few weeks.
Gold approached the monthly support level S1:
As always, wait for confirmation from price.
Additionally, we had a confluence – at the same level there were daily S2 and monthly S1 lines:
This is always important information that the level may be a place of at least temporary reaction from the price.
Entry – opening position
I like to wait for confirmation from the price. In the above example, the breakout above the resistance zone (light blue) was the place to go long with risk to reward ratio which was still acceptable.