pivot reversal by herivaliant

VIEWS: 7 PAGES: 20

									                     Correlation Code

Strategy 1: Follow the Leader
Strategy 2: Euro/London Scalp
Strategy 3: Pivot Reversal Scalp
Strategy 4: Price Action Channel Scalp
Strategy 5: CorrGap
Strategy 6: CorrTrend
Strategy 7: SnapBack
Strategy 8: CorrEscape

Section 3: Pivot scalping strategy is one of four that is in the
Correlation Code.
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INTRODUCTION: Welcome to the Pivot Reversal
Scalping Strategy
If you like trading with support and resistance levels, you’re going to love the Pivot
Reversal Scalping Strategy…

By trading a breakout system WITH CORRELATION, you not only get additional
confirmation of your trade from the correlated pair, but you also get the opportunity
to snag some extra pips that would have otherwise been left on the table.

Here’s what I mean…

Let’s say you’re trading a breakout strategy with a currency pair that has a fairly high
spread. Well if you were able to identify a positively correlated pair that also just
happened to have a lower spread, you could use the higher-spread pair as a trigger
but TRADE THE LOWER-SPREAD PAIR!

While I realize that saving a few pips here and there may not seem like a lot, when
you’re scalping every single pip counts. Believe me, transaction costs can be the
difference between profiting or not.

But combining correlation with breakouts isn’t just about cutting down on your
transaction costs, it’s also about exploiting volatility.

For example, if you were looking to take a breakout trade in one currency pair, you
might also want to take a breakout trade in a correlated currency pair to “double-dip”
the trade.

Obviously this would involve a higher level of risk, but if you’re confident in your
breakout system, why not go all out and profit in two pairs instead of just one?

But it gets even better…

If the correlated pair has a higher volatility, the profits on it could be considerably
higher because

It’s all about maximizing your winners!!
For this trading strategy, we’re using “Pivot Reversals” as our breakout strategy trigger,
because I’ve found them to be one of the most accurate setups in my trading arsenal.
If you’re new to pivots, here’s a quick overview…

       Pivot Reversals Explained: A pivot high is a bar that has a higher high than the
       bar before it or after it. This high point becomes our new point of resistance. A pivot
       reversal low is a bar that has lower low than the bar before it and the bar after it.
       The pivot low bar becomes the new support point.

The break of support and resistance points is a great place to profit. When we are
trading the Pivot Reversal scalping strategy we are looking to use the pair with the
lower average range as the trigger pair. Then look to trade the pair with the larger
average range. The idea behind this is that if the lower range pair is breaking out and
the larger range pair is highly correlated with it, then we should be able to at least pull
10 pips out of the market with a quick scalp trade.

Before you scalp the market, you will want to make sure that the two currency pairs
are highly correlated, and you want to make sure that the larger average range pair is
in control (meaning it has the larger range for the previous bars). Also, the two
currency cross pairs need to be going in the same direction.

While you can trade this on any time frame, I have found that the one hour time frame
is the best time frame to scalp 10 pips on. The best pairs to scalp are below. These
synthetic pairs are the best because of there low spreads and high correlations.

Recommended Pairs To Trade: GBPUSD/EURUSD, EURUSD/USDCHF,
NZDUSD/AUDUSD, EURJPY/USDJPY, GBPJPY/USDJPY, AUDUSD/USDCAD, and
NZDUSD/USDCAD.


Over the next few pages you will be learning the setup, entry, stop loss, and exit for
the Pivot Reversal scalping trade…everything you need to confidently trade and profit
from Correlated Pivot Reversals…
PIVOT REVERSAL SCALPING STRATEGY: LONG EXAMPLE

Long Setup
The setup occurs at the open of a new bar when there is the possibility that the
breakout line (blue line) will be hit by price in the trigger pair, #1. The trading pair
needs to be moving in the same direction as the trigger pair (if they are positively
correlated) and if they are negatively correlated then the pairs need to be moving in
opposite directions, #2. The trigger pair needs to be in control as far as the pair with
the largest range, #3.

The cross pairs need to be highly correlated, either above 0.8 for a positively correlated
pair or below -0.8 for a negatively correlated pair, #4. The cross pairs also need to be
moving together, #5.
Long Entry
Once you have established that a setup exists, #1, buy the trade pair when the trigger
pair price breaks the resistance breakout line (blue line), #2.
Long Stop Loss
Place a stop loss below the previous bars low or below the most resent support area,
#3.
Long Exit
Sell to close the trade at +10 pips up for a quick scalp or at the end of the bar. The
chart shows our setup, #1, entry, #2, stop loss, #3, and the exit, #5.
PIVOT REVERSAL SCALPING STRATEGY: SHORT EXAMPLE

Short Setup
The setup occurs at the open of a new bar that has the potential to break the support
line (red line), #1. The trade pair needs to be moving in the same direction as the
trigger pair for a positively correlated cross pair and moving in the opposite directions
if the two cross pairs are negatively correlated, #2. The trigger pair needs to have the
larger range going into the trade, #3.

The cross pairs need to be highly correlated, either positively or negatively, #4. The
cross pairs need to be moving in the same direction, #5.
Short Entry
Once you have established that a setup has occurred, #1, sell short in he trade pair
when the trigger pair price hits the breakout support line, # 2.
Short Stop Loss
Place a stop loss above the high of the previous bar or above the most recent
resistance area, #3. Make sure to place your stop loss as soon as you place your trade.
Short Exit
Buy back to close the trade when you are 10 pips into profit or at the end of the bar.
The chart shows our setup, #1, entry, #2, stop loss, #3, and the exit of the trade, #4.
PIVOT REVERSALE SCALP™ TRADING RULES
Long Setup: The setup occurs at the open of a new bar when there is the
opposability that the breakout line with be hit by price in the trigger pair. The trading
pair needs to be moving in the same direction as the trigger pair if they are positively
correlated and if they are negatively correlated then the pairs need to be moving in
opposite directions. The trigger pair needs to be in control as far as the pair with the
largest range. The cross pairs need to be highly correlated, either above 0.8 for a
positively correlated pair or below -0.8 for a negatively correlated pair. The cross pairs
also need to be moving together.

Long Entry: Upon the break of the resistance line of the trigger pair, buy the trade
pair.

Long Stop Loss: Place a stop loss below the previous bars low or below the most
recent support area.

Long Exit: Exit when you are 10 pips into profit or at the end of the bar.

                                    ------------------------

Short Setup: The setup occurs at the open of a new bar that has the potential to
break the support line. The trade pair needs to be moving in the same direction as the
trigger pair for a positively correlated cross pair and moving in the opposite directions
if the two cross pairs are negatively correlated. The trigger pair needs to have the
larger range going into the trade. The cross pairs need to be highly correlated, either
positively or negatively. The cross pairs need to be moving in the same direction.

Short Entry: Upon the break of the support line of the trigger pair, sell short the trade
pair.

Short Stop Loss: Place a stop loss above the previous bars high or above the most
recent resistance area.

Short Exit: Exit when you are 10 pips into profit or at the end of the bar.


Recommended Pairs To Trade: GBPUSD/EURUSD, EURUSD/USDCHF,
NZDUSD/AUDUSD, EURJPY/USDJPY, GBPJPY/USDJPY, AUDUSD/USDCAD, and
NZDUSD/USDCAD.
CORRELATION COEFFICIENT INDICATOR (FXI-CORRELATE)
The following indicator we talked about earlier. The correlation coefficient is the
indicator that shows us just how correlated two pairs are over a pre-determined
amount of time. This indicator moves between 1 and -1. A reading of 1 would mean
that the two pairs are perfectly positively correlated for the X number of bars back. A
reading of -1 would mean that the two pairs are perfectly negatively correlated. For
our purpose, a reading of over 0.8 is positively correlated and a reading of -0.8 is
negatively correlated. As long as our pairs are correlated to a high degree in either
direction we can trade them!
CORRELATED OTHER CHART INDICATOR
(FXI-CORRCHART)
The correlated other chart (FXI-CorrChart) is used to see the other pair that is
correlated to the one you are looking at so that you can see how it is moving. For
example, if you have a regular EUR/USD chart up and you are want to trade the
EUR/USD=GBP/USD correlated cross pair EUR/GBP. You could load the FXI-CorrChart
and set it to GBP/USD and it would show you the GBP/USD in an indicator window. I’m
sure that with this indicator the example below will explain everything.
CORRELATION LINE INDICATOR (FXI-CORRLINES)
The correlation line indicator (FXI-CorrLines) is an indicator that shows the closing
price of both the currency pairs in the correlated cross pair. The reason we have this
indicator is to determine which currency pair is moving higher or lower compared to
the other currency pair.

It can also be used to determine the spread at which the two currency pairs are
moving apart by looking at the angle of the lines. This indicator can be reset to where
each currency pair is equal every five minutes or as high as every year. This allows you
to trade the relationship between the two currency pairs across a large variety of time
frames. In the example below the red line is the EUR/USD and the green line is the
GBP/USD.
PRICE STRENGTH INDICATOR (FXI-PRICESTRENGTH)
The price strength indicator (FXI-PriceStrength) allows you to view the difference
between the High/Low range of the past X number of bars of the two currency pairs
you are trading. You can also view the Close to Close range of the past X number of
bars.

Both of these give useful information when you are trading. For example, if both
currency pairs are moving in the same direction and you want to buy one and sell the
other, you would want to lead with the pair with the greatest strength. (This will
become clear as we use it to trade.)
TIME FRAME STRENGTH INDICATOR (FXI-TFSTRENGTH)

The time frame strength indicator (FXI-TFStrength) displays the correlation strength
from the year down to the five minute chart in real time. If the bars are green then that
means that the pairs are positively correlated. If the bars are red then that means the
time frame is negatively correlated at that time. Each individual bar is worth 0.2 or -0.2
on the chart. So, if there are five bars total then that time frame is highly correlated at 1
or -1. This indicator is useful when trading by allowing you to know at a glance which
time frames are positively or negatively correlated and by how much.
PIVOT REVERSAL INDICATOR
(FXI-PIVOTREVERSAL)
The Pivot Reversal Indicator identifies areas of potential breakouts by locating support
and resistance. After locating these areas the Pivot Reversal Indicator uses high pivot
reversals and low pivot reversals; to determine where the next breakout trade will
occur.

As you can see from the screenshot below, the indicator itself is very simple and
consists of a series of horizontal support and resistance lines...
FINAL THOUGHTS ON PIVOT REVERSAL SCALPING TRADE
WITH THE CORRELATION CODE
The Pivot Reversal scalping strategy allows you to identify scalping opportunities
using support, resistance, and correlation to back your trade. This allows you to trade
knowing that you will be pulling the trigger on the pair that has an average range that
is larger than the trigger pair. This allows what I like to call the correlation factor to kick
in and push the trade in your favor enough for a scalp.

The other correlation factor that the Pivot Reversal scalping strategy looks for is to
have the currency pairs be highly correlated long term. This insures that the two pairs
are moving in a similar fashion, which gives us a more reliable strategy to trade from.

The cool thing about it is that we are also using support and resistance to co-pilot this
trade. Support and resistance in he form of pivot reversals helps to pin point a specific
price that a breakout should occur.

The other factor that helps to make this a successful scalping strategy is that we
confirm that price action is moving in our favor in both the trigger pair as well as the
trading pair. We do this by the bars themselves as well as a proprietary indicator that
shows us how the cross pairs have been moving sense the beginning of the new
session. Not only in direction, but also in terms of correlation.

Until next time…

Good trading,
Jason Fielder

								
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