Talking Points:
- Forex scalpers benefit from the use of technical tools.
- Manage your Stop levels using Camarilla Pivots.
- Use the S3 pivot to set a 1:2 Risk/Reward Ratio.
Camarilla pivot points can be a versatile tool, for the Forex Scalper. Primarily, these pivots are used as levels of support and resistance to pinpoint excellent breakout and retracement entries as we discussed in last weeks "Trend of the Day" article. However, they can also be applied to produce profit targets, as well as levels for stop placements.
Below we can see a sample retracement entry on the GBPCAD at the R3 pivot, which took place earlier this morning. Today we will look at Camarilla Pivots and how they can help Forex scalpers identify placements for stop and limit orders.
So let’s get started!
Learn Forex –GBPCAD Entry with Camarilla Pivots
(Created using FXCM’s Marketscope 2.0 charts)
Setting Stops
Managing risk is one of the most important skills a trader must learn. This is especially true when scalping short term movements on Forex pairs. In the event, price changes directions we will want to exit the market as quickly as possible. Setting a stop with a support or resistance level will allow us to do exactly that.
Below we can again see the GBPCAD, but this time with a stop placement at the R4 resistance line. This is an intuitive place for a stop order when selling the previous level of resistance at R3. If price continues breaking through resistance, the market is indicating that a potential price reversal may be underway. In these instances, it is best to exit any existing positions to keep your account from accruing additional losses if price continues moving towards higher highs.
Learn Forex – GBPCAD Stop / Profit Targets
(Created using FXCM’s Marketscope 2.0 charts)
Profit Targets
Now that a stop order is set, traders will need to find appropriate profits targets for their trades. When selling resistance, it is normal to find a level at an existing level of support. Traders using a R4 stop can look to set their first target at S3. Not only is this an easy to find price level using Camarilla pivots, but is also allows the trader to utilize a 1:2 Risk/Reward ratio.
A Risk/Reward ratio is a direct look at how much profit we make when we are right, relative to the amount of losses we take when we are wrong. Referencing our example above, profit targets set at S3 would net approximately 74 pips in profit. With a stop of 37 pips at R4, this means a trader would be looking to make twice as much on a winning position relative to a loss. Even when scalping, having these ratios inline will help traders avoid the “trader’s number one mistake.”
---Written by Walker England, Trading Instructor
To contact Walker, email WEngland@FXCM.com . Follow me on Twitter at @WEnglandFX.
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