Be Smart Money: Pivot Points And Swing Trading

be smart money pivot points swing trading Jan 07, 2024
Nasdaq daily chart indicating a bullish swing trade from yearly pivot point M2 to yearly pivot point M4 (

How Does Smart Money Maximize Profit?

I am always surprised by how many retail traders constantly lose money because they do not use pivot points. Smart money (institutional investors) use pivot points daily to maximize their forex trading profits by knowing exactly where to get in and where to take profit based on their fundamental and technical bias.

Pivot points are the best leading indicator for a trader of any level and are essential for having control, consistency and confidence.

In my 25 000 + hours of forex trading and eight years of experience as a forex trading mentor, I have learned some important things about trading with pivot points. Let me share my experience with you so you know exactly where to get in and where to take profit based on your technical and fundamental bias, just like the pros do.


What Are Pivot Points?

  • Pivot points are dynamic support and resistance levels: calculated on past price action (yearly, monthly, weekly or daily) that provide traders with key areas to enter and exit trades based on their bias.
  • The central pivot point divides the chart: everything below the CPP is bullish territory and everything above the CPP is bearish territory.
  • Pivot points have distinct labels: R3, R2, M4, R1, M3, CPP, M2, S1, M1, S2 and S3. R stands for resistance, S stands for support and M stands for middle.
  • Each pivot point is a target for another pivot point: making them the most powerful leading technical indicator on your chart. The strategy is simple, enter here and exit there, of course, you don't do this randomly; having a fundamental bias and knowing how to trade market opens is crucial. However, knowing where to expect price to be bullish or bearish ahead of time is like having cheat codes.


What Are Pivot Point Zones?

Pivot point zones are areas where bulls or bears look to enter or exit trades. Profit-taking zones provide an opportunity for counter-trend trading. The critical thing to pay attention to is reversal patterns. If a reversal pattern does not form at a profit-taking zone, though profit-taking takes place, you could enter a counter-trend trade. However, be careful; it is always better (and more profitable) to trade in the direction of the trend.

In a trend, the entry zones and profit-taking zones are as follows:

  • Bulls: M2/ CPP (entry zone) - M4/ R2/ R3 (profit-taking zone)
  • Bears: M3/ CPP (entry zone) - M1/ S2/ S3 (profit-taking zone)

In a range, the entry pivot and profit-taking pivots are as follows:

  • Bulls: S1 - R1
  • Bears: R1 - S1

Counter-trend targets are as follows:

  • Bulls: M1/ S2/ S3 - CPP/ M3
  • Bears: M4/ R2/ R3 - CPP/ M2


Using Pivot Points for Swing Trading

There are three types of swing trades:

  1. Yearly swings
  2. Monthly swings
  3. Weekly swings

The period refers to how long you plan to be in the trade. There are three distinct strategies to follow for swing trades:

  1. Entering at the start of the new period (start of the new year, month or week)
  2. Waiting for price to reach the appropriate zone later in the year, month or week
  3. Combining pivots for portfolio building


Swing trading strategy

Depending on when you are reading this article, you are either coming up to the end of the week, the end of the month or the end of a year. I will discuss a weekly strategy for brevity. However, the same process applies to yearly and monthly swings (for best results, ensure the pivot point indicator you use has a future pivot setting that draws the pivots for the year, month, or week ahead.)

Look at your charts at the end of the week and identify which pairs will be opening at the appropriate zone for the current trend.

  • In a bullish trend, is price opening at the M2 or CPP?
  • In a bearish trend, is price opening at the M3 or CPP?
  • Did price close above the previous week's R2 or below the previous week's S2 and is price opening at the M3 or M2, respectively? (This is a counter-trend opportunity.)
  • Pay attention to your market opens and confirm the trade before entering. Place your stop loss above R1 if selling at M3 or CPP and below S1 if buying at M2 or CPP. Place your take profit at the respective target.

You can run this strategy at the end of every year, month and week. Be patient; sometimes, you might not get a setup, or the setup won't have a confirmed entry. Also, ensure you know the forex trading open hours for Tokyo, London, New York, and New York Stock Exchange, how to trade market opens, and how to manage the risk of an open trade.


Combining pivots for portfolio building

When you have entered your swing trade, you can add further entries at lower periods. For example, suppose you have entered a swing at the yearly M3 with a target of yearly M1. In that case, you can look at adding further entries at future monthly M3 pivots until the yearly swing trade reaches the target or you have a technical or fundamental reason to get out.

The same goes for combining monthly with weekly swing trades and weekly with daily spot trades. Be careful; this is much more advanced, requiring you to know which trades to get out of and when. Make sure your fundamental analysis and technical analysis are up to scratch.


What Were the Best Swing Trades in 2023?

The above video showcases the best swing trades in 2023. Smart money (institutional investors) are clearly using pivot points. How many of these did you enter? Would 2023 have been a better year for you if you knew how to use pivot points?

If you want to ensure this year is better than the last, join FX BOOTCAMP for live forex trading at the Tokyo, London, New York, and New York Stock Exchange market openings every day, as well as weekly stop, look and correct reviews and 1-on-1 performance coaching.

I wish you health, wealth and happiness.

Ryan Gandalf van Jaarsveld
Snr. Performance Coach
Risk warning
Trading is risky and not suitable for everyone. Your past performance, good or bad, is not necessarily indicative of future results. Please stay small, stay humble, focus on the long term and never risk money you cannot afford to lose.

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