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The Pivot Fade
If you haven't visited our "What's A Pivot?" page
yet, be sure to check it out to learn how this
powerful trade indicator works.
Below you will find examples of Pivot Fades. All of the charts on this page are 5 minute timeframe charts. These
charts serve to illustrate how Pivot Points play a major role in day trading successfully. Even if you don't add the
Pivot Fade to your personal trading strategies, knowing exactly where pivot points are is a must have piece of
information for any stock you decide to trade. If you are rading without knowing where the pivots are you might as
well be trading blindfolded. Market Prowler provides Members with pivot point calculations for over 30 commonly
day traded stocks in our weekly newsletter.
DE
Volume was high in the pre-market session, and pre-market
price movement was strongly trending upwards. Using pivot
points we calculated the weekly R1 to be at $79.53, so before
the opening bell we are looking to fade the upward trend. We
enter an open order to short DE at $79.45, slightly below the R1
pivot. Our stop loss order is set at $79.63, since we are
executing pivot fades we don't need a wide stop. It will be very
quickly apparent wether the pivot point accepts or rejects the
trend. Within 10 minutes of the opening bell our order is filled,
and we are shorting DE at $79.45, our stop loss is never hit, as
the S1 pivot forces a trend reversal, and we are in a position
where we entered a short 5 cents below the high of the day.
pivot point day trade using DE stock
day trade SCTY stock pivot points
SCTY
Same setup as DE, high pre-market volume and upward price
trend. Because SCTY has such a low Average True Range (ATR),
we are looking for an options play here instead of shorting
stock. We calculate the R1 to be at 24.83, so we will buy slightly
in the money Put Options at 24.75 in order to not miss the
pivot. 20 minutes after the opening bell the price reaches
24.75, we buy Put Options with a market order (no need to mess
with limit orders because of how fast pivot point reversals are).
SCTY establishes it's high of the day at 24.81 2 cents below the
pivot, and it reverses. We wait for price to trade down to the P
which we calculated at 24.37. As soon as price comes to 24.40,
just above the P, we sell our Put Option contracts at 22% return.
This trade assumed more risk by waiting for price to reach P, as
usually we will exit a trade when price is half way betwen pivot
points.
day trade starbucks SBUX stock using pivot points
SBUX
We calculate the R1 to be at 56.40 and the S1 at
55.52 for the weekly SBUX pivots. We are
looking for an Options Trade with slightly in the
money Puts, trying to fade the R1 at 56.35. The
stock price never reaches 56.35, instead it
establishes a high at 56.29, so we don't take the
trade. We assess the situation and notice price
is falling back down. Using our pre-calculated
weekly pivot points we revise our strategy to
try and fade the S1 Pivot using Call Options. We
place a market order for Calls when the stock
price reaches 55.55, just above the S1 pivot.
Our call options go up in value as the price
bounces upwards from the S1. Idealy we want to
sell our calls when price reaches P at 56.05,
however we've done this enough times to learn
not to be greedy, so we sell the calls when
SBUX is half way between S1 and P. We are out
at 55.78 with 17% return.
SCTYseconddaytrade
SCTY - Day 2
Before trading even starts we already know
what the pivot points are, we have the
weekly pivots for SCTY pre-calculated. As
soon as the market opens we notice a huge
gap down and the stock falling hard. We take
this as an opportunity to fade the S1 pivot.
Since we know the S1 is at 23.90 we place an
open order to buy shares of SCTY at 23.97
just above the pivot. We are filled at 23.97,
the price chart reverses itself establishing a
low at 23.92. To reduce risk we sell 1/3 of
our shares when price reaches 24.20 (the
midpoint between the 2 pivots), and we
spend the rest of the day managing out trade
and scaling out of out position as price
increases. This was a fairly easy and stress
free trade for those who used Pivot Fades as
their strategy that day.
day trading AMD and investing using pivot points
key support resistance level day trades in GT
AMD
Using pivot fades we were able to get 2
Option Trades in on AMD this day, with a
18% return on the first trade, and a 27%
return on the second trade. Our first trade
was fading the R1 pivot immediately at
open, we sold all of our option contracts
half way between the P and R1 in order to
not be greedy. While AMD was happily
trading along we were busy conducting
trades on other stocks, by the time we
checked back to AMD it was in the process
of re-testing the S2. This brings me to an
important rule. DO NOT FADE THE SAME
PIVOT 2 TIMES IN 1 DAY. The 2nd test of a
pivot point usually means that
the stock will break through that pivot and make its way up to the next highest pivot. So in this case we watched
AMD trade up with a plan to short it at R2. Slightly below the R2 pivot we entered the trade by buying Put Options
at the market. Since the stock showed no signs of retracement we waited until it reached the R1 level again to get
out of our trade. We exited with a 27% return on the 2nd AMD trade of the day.
GT
This is a good example of the importance of
setting your stop-loss parameters wide
enough so that market noise doesn't reject
them. At the open we knew that the R1
pivot was at 28.65, so we entered the trade
at 28.60, with a stoploss of 28.75. GT
established a high for the day at 28.72, had
we been conservative and used a 5 cent
stoploss we would have gotten stopped out
of a perfectly good Pivot Fade trade.
Remember to always set your stop losses
wide enough to filter out any market noise,
regardless of what setup you're trading. If
necessary, reduce your position size and
widen your stop loss.
Market Prowler Members
The examples found on this page serve an critical role in illustrating the importance of pivot points. Even if you are
day trading using other setups, it is absolutely crucial to know where the weekly pivot points are because they will
affect a stock's movement whether you like it or not. Market Prowler Members can find a table on page 5 of the
weekly Market Prowler newsletter where we have calculated Pivot Points for over 30 commonly day traded stocks,
commodities, and indexes. The pivot point calculations we provide in our newsletter serve as a quick reference
guide to day traders who need to be able to adapt rapidly to changing market conditions. At one second you could be
planning to short a stock, and moments later it might be a better option to go long. With the weekly information
provided in Market Prowler, you'll have the necessary tools to give you both the flexibility and adaptability to make
profitable trades in any market condition.
Have you learned about Squeeze Trades
yet?
If you haven't visited our "What's A Squeeze?" page yet,
or viewed our Squeeze Trade examples, be sure to
check them out!
The Intelligent Trader
To learn more about basic and advanced uses of Pivot Points
check out The Intelligent Trader, which is a book that covers
both this trade setup and many more in depth. This book takes
readers from the beginer level all the way up to the professional
technical analyst level step by step with easy to follow lessons
and examples.
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