Using pivot points for range trading will work, but not all the time. In those times that these levels fail to hold, you should have some tools ready in your forex toolbox to take advantage of the situation!
As we showed you earlier, there are two main ways to trade breakouts: the aggressive way or the safe way.
Either method will work just fine. Just always remember that if you take the safe way, which means waiting for a retest of support or resistance, you may miss out on the initial move.
Using Pivot Points to Trade Potential Breakouts
Let’s take a look at a chart to see potential breakout trades using pivot points. Below is a 15-minute chart of EUR/USD.
Here we see EUR/USD made a strong rally throughout the day.
We see that EUR/USD opened by gapping up above the pivot point. Price made a strong move up, before pausing slightly at R1.
If you had taken the aggressive method, you would have caught the initial move and been celebrating like you just won the World Cup.
On the other hand, if you had taken the safe way and waited for a retest, you would have been one sad little trader. The price did not retest after breaking R1. In fact, the same thing happened for both R1 and R2!
Notice how EUR/USD bulls tried to make a run for R3 as well.
However, if you had taken the aggressive method, you would have gotten caught up in a fakeout as the price failed to sustain the initial break. If your stop was too tight, then you would have gotten stopped out.
Later on though, you’ll see that the price eventually broke through. Notice how there was also a retest of the broken resistance line.
Also, observe how when the pair reversed later in the day and broke down past R3. There was an opportunity to take a short on the retest of resistance-turned-support-turned resistance (read that again if you have to!).