Trading rules for pivot buys

Let's jump into the trading rules and look at some setups:

TRADING RULES FOR PIVOT BUYS ON TRENDING DAYS (SELLS ARE REVERSED)

1. Unlike the gap charts, I want to see 24 hours' worth of data, so I can view any

overnight highs and lows. Each day I update the appropriate pivot levels on the

charts to reflect the previous day's action. On Monday's I also update the weekly

pivots, and on the first trading day of a new month I update the monthly pivots.

2. The first pivot play is done in conjunction with the gap, if there is one. If there

is a gap down, then I buy a decline into the closest pivot level. If there isn't a

playable gap (over 10 YM points or 1 ES point), then I will wait until 9:45 a.m.

Eastern to initiate the first play.

3. If the volume on the five-minute ES chart is over 10,000 contracts, then I'll wait

for the markets to penetrate a pivot level, moving up at least a quarter of the way

to the next pivot level. Once this happens, I will then set up a bid to buy the first

retracement back to the violated pivoi level.

4. I enter my trades with limit orders only. I place orders just in front of' the pivot.

For the YM 1 use 3 points; the ES 0.25 points; NQ 0.50 points; ER ,20 points;

and for individual stocks .05 cents. For example, if I'm trading the YM and the

pivot level is 10000, then I would buy a decline to 10003 and short a rally to 9997.

Sometimes the pivot will be an odd number, such as 1117.38 on the ES. In this

case 1 always round in the direction of the trade. So, if I'm bidding for a long, I

will round 1117.38 to 1117.50, and my bid will be 1117.75. If I'm offering a short,

I will round 1117.38 down to 1117.25 and place my offer at 1117.00. My stops and

targets, then, would be just in front of these appropriate long and short levels.

5. Once filled, I place an order to close the first half at the next pivot level, and the sec

ond half at the pivot level after that, using the same just in front of parameters.

6. 1 place a 20-point stop for the YM, 2 points for the ES, 4 points for the NQ, and

1.50 points for the Russell. For stocks, I will use a stop based roughly on the

price of the stock. If the stock is under $10 a share, I will use a stop of 20 cents.

1. If it is between $10 and $20,1 will use a stop of 30 cents, between $20 and $301 will use a stop of 40 cents, and so on, adding another 10 cents for each $10 increment in price. (So a $75 stock would have an 80-cent stop, etc.)

7. If the first target is hit, I will then move up the stop to my entry level pivot,

minus the just in front of fractions discussed in rule 3. For example, if I get in

a YM long at 10003 and the pivot is at 10000, then my new stop would be 9997

once the first target is hit

8. If I am in a trade at the market close and neither my stop nor my target has been

hit, I will close my position out at the market at 4:10 p.m. Eastern for futures,

and at 3:58 p.m. Eastern for stocks.

9. I don't initiate any new positions after 3:30 p.m. Eastern, but I will manage exist

ing positions into the close.

10. The markets rarely have a sustained move above R3 or below S3. If I trade to

those levels, I will always fade the move.

11. After two losers in a row, I'm done with pivots for the day.

TRADING RULES FOR PIVOT BUYS ON CHOPPY DAYS (SELLS ARE REVERSED)

The rules for choppy days are identical except for the targets. On choppy days, I just focus on the YM and the ES. My first target is mechanical, 10 points for the YM and 1 point for the ES on half of my position. Once this is hit, 1 will trail up my stop in the same way I would for a trending trade. The second target becomes the just in front of level for the actual next pivot level. In working with other traders, I've found that they grasp the concept of the choppy day setup easily, but struggle with the trending day setup. Therefore I focus most of the examples on the trending day setups, and we go through those first.

Specific Examples of Trading the Pivots

E-mini S&PSeptember 2004 Contract, September 10, 2004

1.The S&Ps gap down into daily S1 (see Fig. 7.5). I have a limit order to buy placed

at 1114.00, just above daily S1. The market comes very close to this level, but not

close enough. 1 am not filled, and the market rallies away without me. Once the

market pushes up through the midpoint, I move my bid to buy the next pull back to

the midpoint. The midpoint is at II 15.88, so I get a little in front by placing an

order to buy at 1116.25.1 am filled quickly at this level. I place an initial two-point

stop at 1114.25, and my first target is just in front of the next pivot. The pivot is

1118.00, so my first target is 1117.75.

2.My first target is hit, and I move my stop up to 1115.50 (just below the midpoint

where I entered the trade). Shortly thereafter my second target is hit at 1119.75,

and I am out of the trade.

3. I place an order to buy a pull back to the pivot at ] 1 ] 8.25-1 am filled and place a

two-point stop at 1116.25. My stop is hit The market rallies back through the

pivot, and I place another order to buy a puJlback to 1118.25.1 am filled and place

the same two-point stop at 1116.25.

4. My first target is hit just in front of the next pivot level at 1119.75.

5. I move my stop up on the second half of my position to 1117.75, which is just

below the pivot where I entered my trade.

6. I exit the second half of my position at 1122.00t just in front of the next pivot level.

Once the market pushes decisively through this pivot level, 1 place a bid to buy at

1122.50, just above Rl. 1 am not filled, and the market goes on to make new highs. At this point it is past 3:30 p.m. Eastern, and I am done with my pivot plays for the day.

E-mini S&PSeptember 2004 Contract, September 9, 2004

1. The S&Ps gap open, and I place an order to short just below the midpoint at 1121.00 (see Fig. 7.6). I am filled, and place a two-point stop at 1123.00. My first target is just in front of the next pivot level at 1120.00. This target is hit, and I move my stop down to 1121.75, which is just above the pivot level 1 used for my entry. My second target is just in front of the next pivot level at 1118.00.

2. My target is hit on the second half of my position. The market bounces and starts

to move up to the daily pivot, and I place an order to short at 1119.25,1 am not

filled, and the market rolls over and moves quickly into daily SI.

3. I move my order to short down to the next pivot level* and my order is now

1117.25.1 am filled and place a stop at 1119.25. My first target is 1116.00. This target is hit, and I move my stop to 1118.00.

4. My second target is hit at 1114.25, and 1 place an order to short a rally back to Si

at 1115.25.

5. I am filled and place a two-point stop at 1117.25,1 get stopped out as the market

rallies hard.

6. I'm filled at 1118.00.1 place a stop at 1116.00.

7. The market rallies to the next pivot level, and I'm out half at 1119.25.1 move up

my stop to 1117.25. My next target is quickly hit at 1121.00.

8. Normally [ would place an order to buy the next pullback here at 1120.00. But I

don't. Why? Because I'm following the rules. It is now past 3:30 p.m. Eastern,

and I'm not initiating any new trades!

9. This trade would have been stopped out.

E-mini S&PSeptember 2004 Contract, September 8, 2004

1.The markets gap down and I place an order to buy at 1118.75 (see Fig. 7.7).

This order is not filled. When the markets rally through the daily pivot, I raise

my bid to 1120.75.1 am filled and place a stop at 1118.75. My first target

is 1123.00.

2. My first target is hit. 1 move up my stop to 1120,25,

3. I am stopped out of my second half, and 1 wait for the next setup.

4. The market continues to trend down, so I want to short the next move to the over

head pivot.

5. The market rallies, and [ get short at 1120,25.1 place a stop at 1122.25, and my

first target is 1118.75.

6. My first target is hit, and I move my stop to 1120.75. Shortly thereafter my second

target is hit at 1116,75.1 place an order to short the next rally to an overhead

pivot, and I am filled at 111 S.25.1 place a stop at 1120.25. My first target is hit at

1116.75, and I move my stop down to 1118.75. The market rallies into the close, and 1 am stopped on the second half.

E-mini RussellSeptember 2004 Contract, September 10, 2004

1. The Russell 2000 futures gap down, and I place a bid at 561.90. (see Fig. 7.8). I

am filled and place a stop at 560.40. My first target is 563.80, and this is filled

quickly. I moved up my stop to 561.50.

2. My second target is hit at 566.50, and the market continues to rally through this

midpoint.

3. Once the market pushes through the midpoint, [ place a bid at the pivot below at

564.20. The market never comes down to this level and in fact makes new highs.

Once this happens, I move up my bid to (he next pivot level, and my new bid is

566.90.1 am filled close to 2:00 p.m. Eastern. 1 have been bidding long for 3'A

hours. With pivots, patience is a virtue!

4. 1 place a stop at 566.40, and my first target is 569.30. My first target is hit, and I

move my stop up to 566.50. The market hangs around this same level into the

close. Since neither my stop nor my target is hit. 1 exit at the market al 4:10

p.m. Eastern and get out at 569.40.

1. The Russell 2000 opens flat and pushes higher, right into daily Rl (see Fig. 7,9), I

set up a bid to buy the next pullback to the midpoint at 554.90.1 am filled and

place a stop at 543.40, My first target is the next pivot level at 557.20, This level

is hit, and I move up my stop to 554.40.

2. The markets spend the next four hours consolidating, then finally push up and hit

my second target, once again showing how patience with the pivots pays off,

3. The market pushes through the midpoint and starts to pull back. I place a bid at

560.10. The market comes close, but I am not filled. The Russell pushes through

daily R2, and I move up my bid to 562.60. I get lllled here and place a stop at

561.10. My first target is 564.90.

4. My first target is hit. I move up my stop to 562.10. The market approaches the

close without hitting either my stop or my second target. I exit at the market at

4:10 p.m. Eastern and get out at 566.30 on the second half of my position.

E-mini NasdaqSeptember 2004 Contract, September 3, 2004

1. The Nasdaq gaps down, and 1 place a bid at daily SI at I3SO.5O. This isn't filled, and when it moves up through the midpoint, I raise my bid to 1386.50.1 get filled and place a stop at 1382.50, with my first target at 139L00. The first target is hit, and F raise my stop to 1385.50,

2. I'm stopped on the second half. The market goes on to make new lows, and I

place a short at 1385-50.1 don't get filled.

3. The market continues to fall and slams into the next pivot level,

4. I move my short bid down to the next level at 1379.50.1 don't get filled and noth

ing else sets up for the day. A good day to rearrange the sock drawer.

E-mini NasdaqSeptember 2004 Contract, August 5, 2004

1. The Nasdaq has a slight gap up into the midpoint, and I short at 1383.50 (see Fig.

7.11). I place a stop at 1387.50, and my first target is at 1379.50.

2. My first target is hit, and I move my stop down to 1384.50. The market rallies,

and 1 am stopped out on my second half-3w The Nasdaq sells off through the next pivot level.

4* Once it is through this level, I place an order to short a rally back up to this level at 1373.50.1 get filled and place a stop at 1377.50 with my first tanget at 1369.50. The first target is hit quickly, and I move my stop down to 1369.50. My target on the second half is 1364.50.

5. My target on the second half is hit, and I am now flat,

6. I place an order to short a rally to the above pivot level al 1368.50.1 am filled and

place a stop at 1372.50. My first target is the pivot below at 1364.50. This gets hit,

and I move my stop down to 1369.50.

7. My second target is hit at 1359.50.1 place an order 10 short a rally to the next

overhead pivot level at 1364.00,1 come right up to this level but am not filled, and

that is the last pivot play that sets up for the day.

Mini-Sized DowSeptember 2004 Contract, August 5, 2004

1. The mini-sized Dow futures open mixed and begin selling off early in the session

(see Fig. 7.12). I place an order to short the next rally to midpoint at 101 18, but I

don't gel filled. Once I break down through the daily pivot, I move my order to

short down to 10091. This time I get filled, and I place a stop at 10111 and an

order to cover half my position at 10069. I'm filled on the first half of my order,

and I then move my stop down to 10097. My next target is 10041.

2. My next target is hit, and Fm now flat.

3. The market continues to move lower and tests the next pivot level. I place an order to

short at the pivot level above, right at 10035. The market is acting really slowly. I put my orders in place and go grab some lunch. By the time 1 get back, I'm still not filled, which is why I absolutely love the low volume August trading. It takes a couple of hours, but I end up getting filled later in the afternoon. 1 place a stop at 10055, and my first target is 10015. This target is hit quickly, and I move my stop down to 10041.

4. My second target is hit at 998S, and I'm now flat. Since the market continues to

trend lower, 1 place a bid to short at the next overhead pivot level and I place an

offer at 10008.

5. The market trades right up to this level, but I don't get filled. When the market

collapses, 1 move my offer down to 9982, but this doesn't get filled either.

Mini-Sized DowSeptember 2004 Contract September 2, 2004

1. The markets open mixed and rally into the midpoint at 10189 (see Fig. 7.13). 1 set

up to buy the first puilbaek, and I place an order at 10163.1 come very close to

this level but not quite, and 1 don't get filled. The market rallies through the next

pivot level, and 1 move my bid up to 10192. The market doesn't even look back

and keeps on going, moving up through yet the next pivot level.

2. 1 move up my bid again to 10221. This time 1 get filled and place a stop at 10201,

and my first target is 10238. The first target is hit quickly, and 1 move up my stop

3. My second target is hit at 10261, and I am now flat.

4. The market rallies, and 1 place an order to buy at 10267,1 don't get filled, and the

market closes near its highs.

Mini-Sized DowSeptember 2004 Contract, August 25, 2004

1. The Dow gaps down, and 1 place in a bid at 10077 (see Fig. 7.14). 1 get filled and

place a stop at 10057 with my first target at 10090. My first target is hit* and 1

move up my stop to 10071.

2. The Dow continues to rally, and my second target is hit at 10104.

3. I place an order at 10096 in order to buy the next pullback. 1 get filled and place a

stop at 10076. The market slows to a crawl for the next hour and nothing happens.

Then momentum begins to pick up, and I'm out of my first half at 10104.1 raise

my stop to 10090,

4. My second target is hit at 10118.

5. The Dow continues to rally to the next pivot level. I place an order to buy a pull-

back at 10124.1 don't get filled.

6.The market pushes higher to the next level, and 1 raise my bid to 10144.1 get

filled and place a stop order at 10124 with my first target at 10157. My first target

is hit quickly, and 1 raise my stop lo 10138.

7.My second target is hit at 10171, and I am now flat. The market continues to rally

to daily R3. This is a rare event. The markets hardly ever get through R3, and I

always fade initial moves to these levels, I place an order to short at 10185.1 am

filled and place a stop at 10205. The market pushes up to 10200 and fades into the

close. Since neither of my parameters is hit, I cover at 4:10 p.m. Eastern at 10176.

KLAC (KLA Tencor Corp), September 10, 2004

1. KLAC gaps down on this day, and I place an order to buy at 38.48 (see Fig. 7.15).

I am filled, and I place a stop at 37.93. My first target is hit at 38.89, and 1 raise

my stop to 38.38.

2. The stock continues to rally, and my second target is hit at 39.39.

3. I place an order to buy the first pullback at 38.99. This order doesn't get filled,

and the stock runs away.

4. When it breaks the next pivot level, I raise my bid to 39,49. It takes a while, but I

get filled and place a stop ai 38.99,

5. My first target is hit ai 39.72, and [ raise my stop to 39.39.

6. By the time the market approaches the close, neither of my parameters is hit, and I lose out at the market right at 4:00 p.m. Eastern at 39,78,

Archives
Forex Trading. Currency markets

Day Trading. Stock Investing

Trading Stock. Buffet. Investment

Intraday Trading. Profitable Investments

Swing Trading Signals. Invest in Stocks

Money, Finance, Power, Inflation

Previous Issues

200509-14

The pivots help to keep a trader grounded

200509-13

Note that one of the best signs of an amateur trader is a person who only uses tight stops or a 3:1 risk reward ratio on every trade

200509-12

As compared with single-item markets, a multi-item market such as the E-mini S&Ps or the mini-sized Dow futures

200509-11

One of the most frustrating things for traders is dealing with a tight range

200509-10

The trinq (TradeStation symbol STRINQ) is just like the trin, except that it's for the Nasdaq

200509-09

For anyone who trades individual stocks, ETFs (exchange traded funds) such as the QQQQ (Nasdaq 100 Trust), DIA (Dow Diamonds Trust) or SPY (Standard & Poor's Depositary Receipts for the S&P 500), or stock index futures intraday

200509-08

Forex trading, like many new things, is confusing yet simple