Pivot Trade with the Direction of the Trend + Considering Set-ups Past a Given Predetermined Trading Level

August 21, 2014

The market started off in a nice, uptrending climb toward the daily pivot. Naturally, I had expected the pivot point to be the first level in play on this trading day. The market came within a pip, but started reversing, offering about a seven-pip retracement to at least temporarily pause the uptrend that had defined the market’s open.

The 3:35(AM EST) candlestick, however, made quick work of the pivot by blasting through it during a data release. It’s always imperative to be mindful of volatility/momentum in your trading. If a market is moving fast, you probably don’t want to be trading it. In this case, economic data out of Germany caused this early-morning spike, a quick fifteen-pip upmove. In this case, it was “purchasing managers index” (PMI) data that was the root cause. This basically evaluates the economic health of the manufacturing and private sector industries.

Data from the Eurozone as a whole (instead of Germany alone) was released at 4AM EST. This caused a move back down to the pivot in the form of about a ten-pip drop. PMI data is definitely something to keep an eye out on your calendar as it certainly does have the potential to move the market and influence trade set-ups and outcomes.

But this move back down to pivot helped set up my first trade of the day. The 4:05 candle (Eurozone PMI news candle) came to reject pivot. The 4:10 did the same and was bullish overall, closing a couple pips above the pivot. In addition to the overall uptrend for the morning, I expected the pivot level to hold for a call option opportunity.

Consequently, on the 4:15 candle, upon the re-touch of pivot, I entered a call option for a 4:30 expiry. This trade did go up three pips in favor relatively early on, but it fell below pivot and I lost this one by about a pip.

Soon afterwards, price moved back above the pivot level, which was rejected on the 5:30 candle on the way back down. The market made another move down to the pivot on the 6:00 candle. But I decided to pass on this particular opportunity, as market volume seemed to be picking up as it approached that level, simply based on an uptick of speed/activity in the market. Pivot was rejected, but I’ve lost trades in the past due to a failure to account for momentum, so I bypassed this opportunity and it ultimately turned out for the best.

The trade I was able to get into came around the pivot level, but as a put option set-up. Price first rejected pivot on the 6:10, before a close slightly above on the 6:20. This trade didn’t set up ideally, given I prefer a rejection of a predetermined price level. A close above usually invalidates a potential set-up. But I kept watching this one and saw that there was definitely a level of resistance occurring here, only a few tenths of a pip above pivot. An area that is constantly and serially wicked against is usually a good area to consider for trade opportunities. I drew in the level after the red 6:30 candle, at 1.32661.

When the market came up to 1.32661, I entered a put option on the 6:35 candle. This trade spent time both in and out-of-the-money, but eventually brought a small winner, settling right around the pivot level.

The 1.32661 level was reconsidered about an hour-and-a-half later. Price nearly tested it again on the 7:45 candle (tenth of a pip shy), and broke above before wicking back down on the 7:55. I was hoping for a re-touch of 1.32661 for the possibility of entering yet another put option trade at the level. But it simply never set up and I finished with a 1/2 ITM day.