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Game-Changing Trading Strategy | How To Day Trade Stocks, ETFs & CFDs With Pivot Points - YouTube
Channel: The Secret Mindset
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Hey guys, here鈥檚 a fun fact about pivot
points: the market trades to the central pivot
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point around 60% of time.
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This means that every day, there鈥檚 a chance
of 60% that the market will reach the main
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pivot point.
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To me, that鈥檚 a pretty good probability,
compared to the 50% odds of the market going
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up or down.
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But what if we add the opening gaps into setup?
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Well, believe it or not, the chances of hitting
the pivot point are even higher.
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So, in this video I will show you how I trade
stocks during the opening session taking into
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account just gaps, pivot points and simple
price action.
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Before we continue, if you are new to the
channel and you find value or you learn something
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new, please consider subscribing and leave
us a like to show your support.
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So, one of my favorite trading setups occurs
when i see a market gap at the open of the
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session.
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When this happens, I use the pivots points
to either trade a potential breakout move,
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or fade the market for a fill of the gap.
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Here is the logic behind the strategy: a gap
at the open indicates that market sentiment
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has changed overnight and, logically, the
market is bound to move in the current session.
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What I鈥檝e observed during my years of trading
is that the central pivot point can have a
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magnetic effect on price, which in our strategy
can lead to a high percentage fill of the
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gap we鈥檙e trading.
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The central pivot point is the main focus
of the market.
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This pivot is basically a powerful price-based
support and resistance level.
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We just have to add the previous day high,
low and close and divide this amount by 3,
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and we鈥檒l have our central pivot point.
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For this technique, we don鈥檛 even need all
pivot levels on our chart, I just keep the
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central one and the S1 and R1 levels.
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If you remove all the pivots below S1 support,
you are forced to remain disciplined to a
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bullish trend by looking for long opportunities
at S1 and the central pivot point.
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Likewise, removing all pivots above R1 forces
you to search in the direction of a bearish
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trend.
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This seems like a simple concept, but many
traders can lose focus of the trend through
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all the noise that comes along with trading,
especially if you are day trading.
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So, I previously said that we need a gap to
increase our chances.
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A price gap occurs when something important
influences the market at a time when the exchange
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is closed.
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Gaps can also occur because of a large cluster
of orders placed at the point where the stock
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breaches through support or resistance.
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I don鈥檛 want to insist too much on gaps,
we鈥檒l have plenty of examples later, all
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you need to know about them is that there
are 4 types of gaps.
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We have the common gap.
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The common gap appears as a space on a chart
and is brought by normal market forces.
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There is no major event that precedes this
type of gap and generally gets filled quickly
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when compared to other types of gaps.
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We have breakaway gaps.
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A breakaway gap occurs at a point of clear
resistance or support, when there are a large
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number of buy orders just above a major resistance
line, or sell orders below a support line.
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Also we have exhaustion gaps.
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An exhaustion gap occurs at the end of a sustained
and volatile price move and confirms the reversal.
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An exhaustion gap signifies a clustering of
orders anxious to exit their positions.
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And finally, runaway gaps.
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A runaway gap occurs at different points during
a clear trend and confirms the trend.
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It is characterized by a significant change
in price in the direction of a trend.
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Now that we have briefly explained the gaps
and the pivot points let鈥檚 dive right into
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the strategy.
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So, we know that the price is likely to reach
the main pivot point and we also have a gap
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that has a high probability to be filled.
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How do we trade?
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We buy or short the market with the aim of
reaching the pivot point.
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Let's take an example.
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This fifteen-minute chart of apple stock illustrates
a perfect trade.
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The stock opened the day with a gap up and
formed a bearish reversal pattern.
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Since the central pivot point was around the
prior day's close, there was a high probability
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that the price would return to that area,
which was indeed the case.
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The bearish reversal setup easily triggered
an entry on this day, as price dropped steadily
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to the central pivot point before finding
support.
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And here we have another example.
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The session opened with a gap down and formed
this time a bullish reversal pattern.
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The central pivot point was around the prior
day's close, so we have a high probability
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that the price would return to that area.
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Remember this rule, because is very important
for our setup.
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Central pivot placement should be at, or very
near, the previous day's closing price.
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When this is the case, the pivot point helps
attract price to fill the gap.
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The bullish reversal setup triggered a buy
entry on this day, as price reached the central
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pivot point before finding resistance.
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Here we have the Tesla stock with the same
pattern.
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The session opened with an upward gap and
after 2 bearish reversal candlesticks the
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price headed back to the central pivot point.
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You must remember that the goal of this strategy
is to play for a fade of the gap back toward
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the central pivot point, meaning that the
trade will be short with little room to breathe.
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Aim for the main pivot and exit the trade
as soon as the market hits this area.
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If you can get a little more out of the trade
then go for it.
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But don't wait all day for the gap to fill,
because the longer the trade takes, the more
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unlikely it is to fill.
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Another important factor to consider when
trading this setup is looking for additional
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pivot confirmation at S1 and R1 levels.
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If price gaps up to R1 resistance, or down
to S1 support, these pivots can serve as a
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barrier, which leads to a higher percentage
of filled gaps.
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On this tesla chart, we see the R1 level offering
resistance and after that level was rejected
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the sellers took control of the market and
drove the price back to the main pivot level.
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This was a riskier trade because the main
pivot wasn鈥檛 as close to the previous day鈥檚
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closing price as I wanted.
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Also, be careful when the market gap is large.
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Gaps that are too large don't tend to fill
as easily as those that are moderate in size.
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When this happens, you鈥檒l often see that
the price won鈥檛 go back to the main pivot
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point and will find resistance at R1 or S1
levels.
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In this example, on the same tesla stock we
have a 10 dollars gap and the price found
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support at R1 level.
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Basically is the same pattern as we talked
before, but because the gap was too large,
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the market found support at the nearest level,
R1.
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And here we have a big down gap on Facebook
stock.
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The price found resistance at S1 pivot point
and continued its downward direction for the
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rest of the day.
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So, when we have big gaps the likelihood for
getting filled is low.
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The trend can also play an important factor
in the successful outcome of this trade.
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When a market has formed an established trend
price will usually pull back to the pivot
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before resuming in the direction of the trend.
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Therefore, if the market has formed an uptrend
and price gaps in the direction of the trend
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(up), there is a very good chance that price
will drop to the pivot point before another
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round of buying pressure is seen, thereby
causing a fill of the gap.
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So, in this visa chart, we have a clear uptrend
with higher highs and higher lows and we saw
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this gap and the rejection candle at the R1
level.
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The perfect trade would have been a short
position aiming for the main pivot and then
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a buy at the pivot point in the direction
of the trend.
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You could skip all the way the gap from the
equation and start searching for long positions
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only.
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So, a conservative approach here would be
to acknowledge the gap, to acknowledge the
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fact that the price is likely to reverse to
the central pivot, and enter long on the market
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when the price finds support at the main pivot.
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If you learned something new or found value,
please consider subscribing to our channel,
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share and like this video, as it would help
us a lot in the future.
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Until next time.
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