The Pivot points (PP) are one of the most common methods for identifying support and resistance levels. There are several different methods for calculating pivot points, the most common of which is the five-point system. This system uses the previous day's high, low and close, along with two support levels and two resistance levels (totaling five price points) to derive a pivot point. The equations are as follows:

Pivot Point: P = (High + Low + Close) / 3

Resistance 1: R1 = 2 * P - Low
Resistance 2: R2 = P + (R1 - S1)
Resistance 3: R3 = High + 2 * (P - Low)

Support 1: S1 = 2 * P - High
Support 2: S2 = P - (R1 - S1)
Support 3: S3 = Low - 2 * (High - P)

Note that the High, Low and Close in 24-hour markets (such as forex) are often calculated using New York closing time (5pm EST) on a 24-hour cycle. The Pivot points are calculated on daily charts but traded on lower time frame charts (ex. 15 min.).

When trading the tests of the Pivot Points we should use other indicators or support and resistance levels for confirmation. For example we can combine the Daily Pivots with Bollinger Bands on 4 hours chart.

Retracement Logic

Rules for Long Position

1. The prices approach daily Pivot Point (PP, S1, S2) support and the lower Bollinger Band on 15 (or 30) minutes chart. Use FSB to fine tune this rule.
2. Long position is initiated when:
   - the price hits the pivot point (PP, S1, S2), or
   - the price breaks a few pips below the Pivot Point (PP, S1, S2).
3. After the position is open an initial stop loss order is placed 2-3 pips below the low reached during the test of the pivot point or at fixed distance from the entry point.
4. A limit order is placed according to our Money management rules.

Rules for Short Position

1. The prices approach daily Pivot Point (PP, R1, R2) support and the upper Bollinger Band on 15 (or 30) minutes chart. Use FSB to fine tune this rule.
2. Short position is initiated when:
   - the price hits the pivot point (PP, R1, R2), or
   - the price breaks a few pips above the Pivot Point (PP, R1, R2).
3. After the position is open an initial stop loss order is placed 2-3 pips above the high reached during the test of the pivot point or at fixed distance from the entry point.
4. A limit order is placed according to our Money management rules.

Indicator chart

Breakout Logic

Market: EURUSD 4 Hours

Rules for Long Position

1. The market price breaks through the daily Pivot Point Resistance 2 level.
2. The daily PP R2 is above the Upper Bollinger Band.
3. Open long position when the price reaches 3 pips above the Resistance 2 level;
4. We can open a position once a week
5. We close the position at the end of the week.

Rules for Short Position

1. The market price breaks through the daily Pivot Point Support 2 level.
2. The daily PP S2 is below the Lower Bollinger Band.
3. Open short position when the price reaches 3 pips below the Support 2 level;
4. We can open a position once a week
5. We close the position at the end of the week.

Charts

Balance / Equity chart tested by Forex Strategy Builder

Indicator chart

Parameters, Statistics, Strategy Slots

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