As all my faithful readers know, through the past year I have become a regular contributor to Currency Trader Magazine, one of the most well known and respected forex-related publications dealing with forex trading fundamentals, strategies, analysis, etc. Today I am proud to announce my ninth contribution to the magazine, which is an article on its last edition (Dec 2010). On today’s post I will talk about what the article is generally about, why I wrote this article and what I wanted to achieve with its publications. I’ll talk about some of the broad implications of the article as well as some possible future expansions of this concept. Please remember that you can download the latest edition of the magazine completely for free by accessing the magazine’s website here.
One of the topics that has always interested me in trading is the use of support and resistance levels to construct mechanical trading strategies. The main problem with this approach however has always been the fact that support and resistance do not have a strict mathematical definition and some assumptions need to be made in order to be able to draw these levels. For example, you need to consider if support and resistance levels are high/low values, congested zones, etc. However one kind of support and resistance levels – the daily pivots – do have a strict mathematical definition, making them the perfect kind for the ellaboration of a mechanical trading strategy.
Those of you who are Asirikuy members may remember that I made a pivot-based strategy on the website as an example of how to build a trading system based on ME analysis, however this strategy was not purely pivot based as it used the ATR indicator to gauge volatility. The currency trader magazine strategy is innovative due to the fact that it shows how you can get a likely long term profitable trading strategy with ONLY the use of pivot levels. The system uses these levels to find SL and TP levels and to enter positions, making it a strategy based solely on daily pivot levels.
The article shows through the analysis of this strategy and its exit some key aspects of pivot based trading as well as the nature of the inefficiency being exploited. Although the actual obedience of the market to pivot points might be limited – see the Activtrader article highlighted near the end inside the blue box – it is clear that some instruments do show significant inefficiencies around these levels. Especially instruments which are as liquid as the EUR/USD allow these to be exploited quite efficiently although other pairs (like the GBP/USD) may also lend themselves to the exploitation of similar tactics.
I certainly liked this CT article a lot as it is the first strategy I have developed which relies solely on pivot points to achieve profitability. While writing the article I also learned some key things about the exploitation of these levels – particularly pertaining to exits – which are shared with you through the text. You can see the dramatic difference a simple exit criteria makes in the profitability of the strategy.
I will continue to write article for this magazine (already agreed to submit entries for January, February and March) so you should see some more interesting free content on this magazine through the next few months. If you would like to learn more about my work please consider joining Asirikuy.com, a website filled with educational videos, trading systems, development and a sound, honest and transparent approach to automated trading in general . I hope you enjoyed this article ! :o)