The Pivot Point Bearish strategy is a short term binary options trading strategy that is often used as a method of risk control. By definition, a pivot point is a specific point on an asset’s chart that is derived from previous highs and lows and it is used to help determine overall market trends. Because it is a bearish strategy, the goal is to make money when the overall trend of your asset is downward.
Application for this Bearish Move
The first thing you will need to know if you are going to use this strategy is to figure out the best way to calculate pivot points. There are a number of methods of doing so, and each will give you slightly different results, which does confuse the process a little bit. The five points method is one of the most popular methods. It takes into account support and resistance levels as well as the previous day’s high, low, and closing price. These numbers are added up and a mean is calculated, giving you the average of the five different reference points used. For most purposes, this number is adequate, although you may want to tweak this as you gain more experience using it.
Once the pivot point is calculated, it is now a matter of observing. As each trading day passes, be sure to update your pivot point information so that you can keep up to date with the most current trends. That’s part of the beauty of this strategy: you can reuse it day after day on the same asset. In fact, this strategy improves the more you use it on the same asset since you can get a better feel for how it applies. It can be used on any type of asset, although it is more effective on stocks and currencies than it is on indices and commodities.
A thorough knowledge of how to use candlestick charts is also needed. When looking at the first candlestick (the opening) of the trading session, if the opening price is below the calculated threshold and in an inverted hammer pattern, it is likely that the trend for that day will be downward. If you wish, this information can be inverted and used on a bullish basis. Instead of an inverted hammer, then, you are looking for a hammer. If you are looking at day end trades, you would want to look at 15 minute increments for best results, although depending upon the nuances of the particular asset you are looking at, you will find that adjusting this on an as-needed basis is going to be more helpful to achieve your goals of successful trades.
Some Drawbacks to COnsider
Like any trading strategy, there are potential drawbacks to the Pivot Point Bearish method of identifying opportunities. First, if you are trading stocks in the traditional method, it can be costly as short selling fees and interest may apply. In this setting, you will definitely want to have a larger margin account and apply safeguards in order to offset risk. For binary options, you will find that this method is not very reliable for ultra short term trades, but rather those that go out several hours or even days. If you are unfamiliar with candlestick charting, you will also find that you might need to make modifications to the timeframes you are evaluating in order to increase your accuracy, depending on the type of asset you are focusing on. And finally, because this method relies heavily upon chart interpretation, there is always the likelihood that fundamental indicators will trump the information that you are given, so keep an eye out for these before you commit.
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