Talking Points:
- 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. Today we will look at scalping breakouts using camarilla
pivot points. Lets begin!
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.
Learn Forex: Support & Resistance with Pivots
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.
Learn Forex: AUDUSD Breakout
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.
