How to Use Pivot Points in TradingView
We just have a quick question here from Paul asking whether we have a specific template that we use for the pivot points. Now Paul, not really, it’s just a standard pivot point. Let me show you which one it is.
Setting Up Pivot Points on TradingView
If you open up your indicators on TradingView, it’s just called “Pivot Point Standard,” so just a standard pivot point indicator. The settings are quite simple as well. If we double-click, you can either have it as a classic or traditional setting; it doesn’t make a big difference. You’ll get fairly the same type of price levels.
Configuring Pivot Points
- Pivot Time Frame: I've set the pivot time frame to auto. You can set it to daily to give you the daily pivot, but it’s not going to give you a very good intraday view. With the daily setting, you can see the daily pivot for R1, the daily pivot, and then S1. I prefer to set it to auto because it will auto-correct for whatever time frame you are on.
- Show Historical Pivots: I’ve chosen to remove the show historical pivots option. The reason for this is I don’t want to clog up the chart with all the previous days' pivots. Sometimes they can be useful, but I prefer just seeing the intraday gauge on the pivots for the day itself.
- Number of Pivots Look Back: This setting can be adjusted. It tells you how many backward-looking pivots you have. For example, if you set it to two, it will show only two days’ worth of pivots. If you set it to 40, it will show 40 days’ worth. This setting isn’t too important for the pivot itself but can help with historical context.
- Style Settings: I’ve gone with the normal daily pivot as well as S1 and R1. If it's a very volatile central bank event or a massive economic event like NFP, you can mark up R2 and S2 as well to give you a little bit of a further move to the downside. However, the challenge is that it will compress your chart a lot, making it smaller and less useful from a price action point of view. So, I prefer to just have S1 and R1 on. As I said, if it’s a major event that you’re trading, you might put on S2 and R2 as well.
Practical Tips for Using Pivot Points
It’s really simple, nothing too major, no secret sauce here, just a standard pivot point for some added confluence levels in terms of targets, stop-loss placement, and entries. Of course, we’re using the Average Daily Range (ADR) as well, so it’s just another tool to add to the toolbox. It’s a useful measure for intraday trading as well.
Using Pivot Points for Trading Risk Events
Pivot points are a great technical tool to use around trading risk events. By understanding how to set them up and use them, you can enhance your trading strategy during high-impact economic releases. Here’s a strategy to trade high-impact risk events, using Non-Farm Payrolls (NFP) as an example.
Trading Strategy for Non-Farm Payrolls (NFP)
Step 1: Analyze Federal Reserve Priorities
The first step is to understand what data points the Federal Reserve is currently focused on. If the Fed is focused on this piece of data, then the data point will have a significant amount of volatility because the Fed is in some way basing its interest rate decisions on that data release.
To quickly determine the Fed’s current focus, you can use our Professional Economic Calendar, which includes a fundamental guide. This resource helps traders stay updated on the data points that matter most to the Fed, providing a strategic advantage.
Step 2: Use High-Low Expectation Forecasts
Professional traders rely on high-low forecasts to gauge market expectations accurately. Here’s a more detailed look at why these forecasts are crucial:
- Institutional Forecasts: Professional economic calendars include high and low estimates from top institutions. This broader range of expectations offers a more comprehensive picture of potential outcomes.
- Market Shocks: When a report exceeds the high estimate or falls below the low estimate, it’s a huge shock to markets because no analyst expected it. Such deviations often result in sharp market movements.
- Lightning Bolt Feature: This tool immediately signals a deviation above the high or below the low of analyst expectations. When a deviation occurs, the lightning bolt feature alerts traders instantly, allowing them to act without delay. The quick reaction to unexpected data can be the difference between a profitable trade and a missed opportunity.
Understanding High-Low Forecasts
Economic forecasts are derived from surveys of credible institutions, each providing their best estimate on upcoming data points. Retail calendars typically present the median of these estimates, which can be misleading. The median forecast doesn’t reveal the full range of expectations and, therefore, doesn’t indicate how surprising an actual data release is compared to the extremes of analysts’ projections.
In contrast, professional economic calendars include both high and low estimates. This additional information shows the analysts’ expectations at the extreme ends of their projections. Great trading opportunities arise when data releases fall outside these high and low estimates, creating market shocks that move prices significantly.
Step 3: Choosing the Most Volatile Instrument to Trade
Using insights from institutional reports, traders can select the most responsive currency pairs. For example, if USD/JPY is particularly sensitive to economic data as outlined by the City Economic Surprise Index and NFP shows a significant deviation, this pair could be an ideal target for trading.
- City Economic Surprise Index: This report identifies currency pairs that react strongly to economic surprises. It highlights pairs that are sensitive to data deviations, helping traders focus on the most responsive markets.
- Risk-Reversal Report: This report shows market positioning, revealing a buildup of call or put options on certain currency pairs. Understanding these positions helps traders choose a pair that may have orders susceptible to liquidation upon the release of an economic data point.
- CFTC Report: This report details hedge funds' positions. If a lot of big players are long the EUR/USD but then data comes out in favor of the USD, some of those funds might have to unwind their positions leading to an outsized move. Good thing you didn’t trade the GBP/USD.
Trade Execution Steps
- Confirm Fed Focus: Ensure the Federal Reserve is currently emphasizing employment data. If employment is a primary focus, the NFP report will have a higher likelihood of moving the market. Remember, if the central bank is focused on the data point, it’s because they are using that data point to make a decision on rates. This is the reason data points that are focused on cause volatility. Additionally, sometimes the central bank is focused on a data point inside a data point. For instance, the Federal Reserve has often called out average hourly earnings as the key thing they are looking for inside the Non-Farm Payroll report.
- Check Forecast Ranges: Before the data release, review the high and low forecast expectations for the event. Plan to trade only if the actual data significantly exceeds the high estimate or falls below the low estimate. This strategy ensures you act on genuinely surprising data and there will most likely be a follow-through reaction.
- Monitor Revisions: Check for any conflicting revisions in the data, as these can alter the initial market reaction. Make sure the primary release and any revisions align to support your trade.
- Enter Trade Promptly: Once you confirm the deviation, act quickly to enter your trade. Enter within the first 30 seconds. Speed is crucial, as market reactions to significant data surprises happen rapidly.
- Set Stop and Take Profit:
- Stop-Loss: Place your stop-loss below the low of the initial spike candle to protect against adverse movements.
- Take Profit: For tier one events like NFP, aim for 30-100 pips, adjusting based on market conditions and volatility. For tier two events, aim for 15-30 pips.
Managing the Trade
- After the Initial Run: Look for a shallow pullback around key pivot points. Pivot points provide natural support and resistance levels, which can be useful for identifying potential entry points on pullbacks and take-profit targets.
- Break Even: Move your stop-loss to break even as soon as possible to protect your gains. Generally, the stronger the release, the shallower the pullback. The market should want to buy off your S&R level and continue to the highs of the one-minute candle and break. If that doesn’t happen, something could be off.
- Reentries: If your initial position is stopped out at break even, consider reentering at deeper pivot points. Use these levels to guide your reentry points and take advantage of further movements in the market.
Conclusion
Pivot points are a powerful technical tool for trading around high-impact risk events. By combining pivot points with a professional trading strategy, you can effectively trade events like the Non-Farm Payrolls. Follow these steps to capitalize on significant economic releases, leveraging the same techniques used by professional traders to maximize your trading opportunities.
If you have any other questions or need further assistance, don’t hesitate to let us know!