As you have learned before pivot point levels won’t hold forever just like support and resistance.
If we use 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 to take advantage of the situation!
As you have learned 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.
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. Eventually, resistance broke and the pair jumped up by 50 pips!
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 fake out as the price failed to sustain the initial break. If your stop was too tight, then you would have gotten stopped out.
Later on, you’ll see that the price eventually broke through. Notice how there was also a retest of the broken resistance line.
Placing stops and targets with breakouts
Something hard about taking breakout trades is picking a spot to place your stop. Unlike range trading where you are looking for breaks of pivot point support and resistance levels, you are looking for strong fast moves.
Once a level breaks, in theory, that level will likely become “support-turned-resistance” or “resistance-turned-support. “If you were going long and price broke R1, you could place your stop just below R1.
As you see in this example, once you saw price break R1, you would have set your stop just below R1. If you believed that price would continue to rise, you could keep your position and move your stop manually to see if move would continue. You’d have to watch carefully and adjust accordingly. You’ll learn more about this in later lessons.
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