Hi everyone,
I would like to share with you a simple strategy that I first developed a few years back. It is one of several strategies in my arsenal that I still regularly use to this day. It has served me well over the years and proven very profitable at times.
This brings me to my first important point: backtesting this or any other strategy is largely useless. I’ve never been a fan of backtesting because in reality there is no strategy that I would use in every situation across every market. Hence, any suggested win rate thrown up by backtesting is likely to be highly inaccurate and therefore useless in helping me determine whether the strategy is potentially profitable. For that reason, I believe it is nearly always better to forward-test on a demo account.
My win rate, coupled with a 1:1.5 risk to reward ratio, has always proven profitable with this particular strategy. Which brings me to my second important point: I use different strategies in different markets and tailor each strategy to the specific conditions I am trading in. I wouldn’t deploy this strategy, for example, if conditions were such that I felt it only had a low probability of succeeding.
Disclaimer
This post is offered as general discussion only and should not in any way be construed as specific investment advice. Anyone acting on the strategy outlined in this post is acting entirely of their own volition and neither the author nor the publishers assume any responsibility for any ensuing financial losses under any conditions or circumstances.
LONDON’S PING PONG PIVOT STRATEGY
Time Frames
- 1H Charts Only.
- No need for higher timeframe analysis
Indicators
- Pivot Points Standard (Traditional)
- Parabolic SAR
- ATR
Instruments
This strategy is limited to the instruments below as they have performed best since first implementing this strategy. Furthermore, being major pairs will help minimise spread costs and maximise the opportunities to find profitable trades.
☛ AUD/USD
☛ GBP/USD
Setting Up Your Playing Grid
After applying the indicators stated above, you will adjust the settings of the TradingView Pivot Points indicator so that only the Pivot line, S1 and R1 are shown. Choose whatever colours take your fancy!
So, your playing grid should have three lines. The Parabolic SAR should also be showing and, somewhere at the bottom of the chart, you should see the ATR.
That’s it, you’re set to go!
Entries and Exits
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In this strategy you are simply looking for price to cross the pivot line.
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The signal candle will be the first hourly candle that opens and closes, wicks and all, either clearly above or clearly below the pivot line. You will then trade in the direction of that candle. You will always enter at the start of the candle following the signal candle and never before.
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The Parabolic SAR must be below price for a valid buy signal or above price for a valid sell signal.
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Exits are based purely on a 1:1.5 risk to reward ratio based on where you have set your stop loss, as detailed below.
Risk Management
- You will place your stop loss above or below the pivot line by the number of pips suggested by the ATR. In other words if the ATR is currently calculated around 30 pips, your stop loss will be 30 pips from the pivot line. Based on a 1:1.5 risk to reward ratio, your take profit will then be set at 45 pips.
- The stop loss should work out to be at least 20 pips. It should not exceed 35-50 pips, making the maximum win somewhere between 50 and 75 pips at a 1:1.5 risk to reward ratio. This rule should invalidate the set up both in the case of huge abnormal candles crossing the pivot line and small inconclusive candles.
- There must be a minimum of six candles before any re-entry on the same chart is permitted.
And that is pretty much it!
The screenshot below shows some great set-ups using this strategy, three of which would have won and one would have lost.
Anyways, feel free to ask any questions and let me know what you think!
