Forex Trading Tools and Methods (+)

TRADING WITH PIVOTS & PETER BAIN'S METHODS

The trading coach Peter Bain has created a Forex trading method based mainly on pivot points. In this article, we are going to investigate his general trading approach.

Highlights of the Peter Bain’s Trading Methods

1. Calculate the Pivots Points based on the past 24 hours and the past 7 days (The average daily range has to be fulfilled before the session is over)
2. Seek for price breakouts (trendlines/channels)
3. Confirm with MACD divergences
4. Identify chart and candlestick formations (double tops/bottoms, hammers, spinning tops, railway tracks, etc.)
5. Focus on four charts (Daily, Hourly, 15-minutes and 5-minutes)
6. Avoid trading during news releases as in this case, technical analysis becomes weak
7. Don’t trade on Mondays, Month’s End, Quarter’s End, and Year’s End
8. The best time to trade occurs between 9.00 am to 1.00 pm EST and 3.00 am to 5:00 am EST
9. Peter suggests that traders should always keep an eye on what the big players are doing by using the COT analysis
10. Currency traders should seek extreme divergences between commercial traders who go long and short. This is a contrarian indicator
11. The timing of entries should be based on session openings and news releases
12. Traders should never care about losses, trading is a game of probabilities and there are no perfect solutions

 

 

General Forex Trading Approach

Peter Bain argues that currency trading should focus on only a few pairs by building positions and avoiding the intraday noise. Technically, his analysis is based on pivots and the breakout of symmetrical price formations on M15/H1/H4 charts. In addition, MACD divergences and candlestick patterns near potential tops/bottoms. Concerning money management, he emphasizes the importance of ATRs and placing orders near pivot points.

These are some general tips from Peter Bain:

• Trading is the art of taking money out of less disciplined traders
• Knowledge is power and trading success follows a learning curve
• Do your homework and always be prepared, there is a routine you have to go through
• Become a position trader, not an intraday trader
• Trade only the 4 majors, avoid the cross rates (EUR against currencies other than the US Dollar)
• Specialize in a single currency pair and study everything about it (for example the Eurodollar)

 

Technical Analysis, Charts, and Timeframes

When trading any Forex pair, there are four charts that need to be monitored at the same time (Daily, Hourly, 15 minutes, and 5 minutes).

• Using the D1, H4, H1, and M15 charts for trend identification and the M5 for entering the market
• Volumes are not going to tell you what comes next because Forex is a very liquid market
• Draw major trendlines and seek symmetrical triangles, then trade their breakouts
• Using MACD for seeking divergences between the price and MACD histogram’s slope

These are some facts about the H1, M15, and M5 charts:

• Pro traders prefer to trade the 1-hour chart as there is no market noise
• The 15-minute chart includes some market noise, but it may be the best chart to trade
• The 15-minute chart can show powerful signals no matter what higher charts suggest
• The 5-minute chart has a lot of market noise. Therefore, the 5-minute chart should only be advised for exact entry/exit

Data needed for each chart:

• Daily chart → 6 months
• Hourly chart → 10 days
• 15-Min chart → 3 days
• 5-Min chart → 1 day

 

MACD Trading

Peter Bain focuses on MACD divergences:

• Using MACD on standard settings (12,26,9)
• It is better to use MACD for spotting divergences and confirming the trend, not as a signaling machine, as MACD is a lagging indicator
• MACD divergences are best when occurring on H1 and H4 charts
• Don’t trade with MACD in isolation (for example, when a MACD divergence is spotted, seek for confirmation, such as a reversing chart pattern)

 

Trading with Pivot Points

Most institutional traders use Pivot Points, while the area between Pivot Points can be seen as “No Man’s Land”.

• The Pivot Points should be best calculated based on the past 24 hours of trading data
• The average daily range has to be fulfilled before the session is over, and pivots can help traders predict where the price is going
• When trading the H1 chart, wait for a bar/candle to close. Buy when the bar closes above the nearest pivot line and sell when the bar closes below the nearest pivot line
• Place a stop-loss 20-30 pips away from the Pivot Point
• Use the M5 chart to watch the trading action when you are using Pivot Pints
• In the M5 chart, the most pivots should form a 30-35 pip distance
• If the distance between two pivot points (5M) is larger (60 pips) calculate the take profit on the bridge point (that means the pivot of the pivot)

24-Hour Pivot Points

As mentioned earlier, over the years, Peter Bain has developed a trading system based on Pivots.

• Using the H1 chart
• Calculating Pivots based on the past 24 hours
• Identifying the lowest and highest points of the past 24 hours
• Working with the midnight-to-midnight timeframe
• The base is the New York or London session time
• Buy below the pivot point and/or when resistance is breached
• Sell above pivot point and/or when support is breached
• For spotting reversals, seek for pins or railway hammers (especially between major pivots, as this should not be happening)

 

Chart: 24-Hourly Pivot Points on H1 EURUSD plus two MACD Divergences

Weekly Pivot Points

• From Sunday at midnight close to the next Sunday at midnight close
• Identifying the lowest and highest point
• Calculating the Pivot Points based on the past 7 days of price action
• Buy below the pivot point and/or when resistance is breached
• Sell above pivot point and/or when support is breached

 

Trading Trend Reversals (technical conditions)

These are the best technical conditions to trade a trend reversal (if two conditions are valid, it is enough):

• Spotting MACD divergences on M15, H1, and Daily charts
• Examining the price behavior close to the nearest pivot point (is the price above or below the pivot?)
• Searching for a breakout of a major trendline or a price channel
• Searching for unusual bars at the end of a price run (such as a hammer, railway tracks, or a spinning top)

 

When to Trade (Forex Sessions & Time)

• Don’t trade on Mondays, Month’s End, Quarter’s End, and Year’s End
• Avoiding trading during important news releases
• News overrides technical analysis and especially important updates which include: New Jobs, Unemployment, and Housing Starts
• Avoiding trading at the opening of each of the four Forex Market Sessions (London, New York, etc.) and during their programmed news time updates

Watch Out during the following times as strange things may happen:

• 3:00 AM ET (London Opening)
• 8:00 AM ET (New York Opening)
• 8:30 AM ET (News Releases)
• 9:30 AM ET (Stock Market Open)

Best Trading Times:

• 9.00 am to 1.00 pm EST
• 3.00 am to 5:00 am EST

 

Reading the Market Sentiment on Currency Futures

Peter Bain suggests to keep an eye on what the big players are doing.

(1) Monitoring the data of Currency Futures

Futures traders are obligated by the CFTC to report their positions daily. The futures market can forecast what happens next in the cash market

(2) Reading what the big players are doing (Commitment-of-Traders Analysis)

Currency traders should seek extreme divergences between commercial traders who go long and short, and this is a contrarian indicator.

• If many more commercial traders go long than short, seek a long trade
• If many more commercial traders go short than long, seek a short trade

 

 

Money Management

• Never care about losses, trading is not a free ride
• Forex is a game of probabilities, there are no perfect solutions
• The average daily range for Euro is usually fulfilled during London session hours
• Use pivots when placing trading orders and open trades close to pivots
• Stop losses should be placed according to pivots
• Stop-loss should be usually at 20-30 pips above/below pivot points
• Take-profit for EUR/USD between 76 and 120 pips (based on Average True Range)
• You can use a trailing stop just below the EMA(18)

ATRs (from top to bottom and from bottom to top)

He also emphasizes the importance of ATRs (Average Daily Ranges) as the price needs to find the other end of its range before the session is over. Pivots can help traders determine the position of the price in this range. These are some key Average Daily Ranges according to Peter.

Forex Pair	Average Daily Range
EURUSD	120 pips
USDJPY	92 pips
GBPUSD	142 pips
USDCHF	150 pips
Average	126 pips

 

 

■ Some of the Trading Methods of Peter Bain

G.P. for CarryTrader.com

May 2024 (c)