This week was a good reminder that second and third levels from pivot points can be very powerful.
They can be a great help in your trading:
- if you have a profitable position you can use S2, S3, R2, R3 as targets
- if you look for trade opportunity you can use these levels to open a position
Few examples from this week.
DAX on Friday – move down ended exactly at daily S2 support:
SP500 futures were moving between S2 and R2 on Wednesday, and a strong move down on Friday ended at S3 support:
Strong sell-off on Yen also ended at S3 support:
And so on. If you’re using pivots for some time these charts aren’t a surprise.
Two tips when we talk about using second and third levels from pivots:
1) combine price action and pivots
Especially when you want to open a position at these levels. You don’t want to open it blindly simply because the price is at S2 or S3.
You want to have a confirmation from the price action that a specific level is working. You can switch to a lower time frame and look for confirmation there.
If you struggle with price action trading then try to use candlestick pattern indicators. They will help you to recognize specific price action formations.
2) look for a confluence of pivots and other support/resistance levels
If you see that there is an important support zone, average or other and at the same place there is a pivot level this could be a good place to open position.
I showed you above a chart od DAX which stopped at S2 level. If you check the same chart on daily you can see that this was also a place of support from 100 simple moving average:
That’s why it is good to use multiple timeframe analysis. With that approach, you’re able to spot situations like that.
Things I look for on higher time frames:
- important support resistnace zones based on highs and lows
- most important averages – 50, 100, 200 on daily, weekly, monthly time frames
Thanks to that analysis I have information about important support/resistane levels from higher time frames. Then I switch to lower time frame and look for reaction at extreme pivot levels like S2, S3, R2, R3. If there is a reaction from the price I know that I have a good candidate to open position.
Anyway, that’s it for today. Just wanted to share with you these few examples. In the future, I’ll write more on how to trade them, which set-ups are best, and so on.