Using Stealth Forex Weighted Pivot Points™ in

conjunction with the Stealth Forex Trading

System™

This product Stealth Forex Weighted Pivot Points™ also referenced as Stealth W Points™ and
SWP

together with

THE STEALTH FOREX TRADING SYSTEM, which includes all written material contained within this
document, the custom indicators named Stealth LCD and Stealth buy/sell and Stealth Hybrid together
with all of the various set up combinations, (but excluding the metatrader4 trading platform)
hereinafter called “the system” is and are copyright protected. You the purchaser of the system are
granted sole personal use of the system. You may not copy, hire or sell or in any other way
promulgate any part or parts of the system without prior written and documented consent of the
owners of the system.
 What are Pivot Points?

Pivot points are a well used and normal part of many traders technical analysis
which have been around for a very long time and it should be understood that
stealthforex.com claims no credit for the development of pivot points.

The pivot point, together with support and resistance levels are important because
they represent a price level at which a major price movement is expected to occur.
Analysts and traders often calculate these levels and use them to determine
probable levels at which price action will accelerate, decline, stagnate or reverse.

Many traders claim to trade very successfully using nothing more than these market
levels.

There are a few methods for calculating pivot points, the most common of which
uses the previous day's high, low and close, to derive the pivot point and the support
and resistance levels. One of the common equations is as follows:

Pivot = yesterday’s high + yesterday’s low + yesterday’s close divided by 3

R1 = (2 X Pivot) - yesterday’s low

S1 = (2 X Pivot) - yesterday’s high

R2 = Pivot + (R1 - S1)

S2 = Pivot - (R1 - S1)

R3 = (yesterday’s high + (2 X (Pivot- yesterday’s low))

S3 = yesterday’s low - (2 X (yesterday’s high -Pivot))

The problem with this equation is that it frequently does not sufficiently take into
account the volatility of the market.

With Stealth Forex Weighted Pivot Points we still use the previous day’s high, low
and close which gives us the pivot point but the rest of the calculation uses a
mathematical formula that takes into account the market volatility and further gives a
weighting to each of the support and resistance levels. All of this is automatically
calculated for you and plotted on your chart by the Stealth W Pivots indicator™.

Naturally, we recommend using SWP as a part of the Stealth Forex method of

trading.
 Trading with Standard Pivot Points

The first consideration is whether the market for a given currency pair is bullish or
bearish. The answer to this question is considered answered by price opening above
or below the pivot point. The opening price is taken from the 00.00 candle on your
chart (using the chart time not local time).

If price opens above the pivot point it would be considered that the bias is bullish and
only long (buy) trades would be considered until price reaches R1. At this point the
trader would either close the trade and take profit or bring up the stop loss and wait
to see if price clears this resistance level. Traders with multi-lots will often start to
scale out of the trade at this point.
If price opens below the pivot point it would be considered that the bias is bearish
and only short (sell) trades would be considered until price reaches S1. At this point
the trader would either close the trade and take profit or bring up the stop loss and
wait to see if price clears this support level. Traders with multi-lots will often start to
scale out of the trade at this point.

If price opens on or very close to the pivot point, then there is no bias and this would
be considered a neutral day where trading the break out would be the favoured
method to proceed.

The strength of support and resistance at the different pivot levels is determined by
the number of times the price bounces off of that pivot level. The more times price
touches a pivot level then reverses, the stronger that level is.

As price moves past R1 or S1 it is becoming “over bought” or “over sold”. The more
levels price moves through, the more acute the “over bought” or “over sold” situation
is, and it becomes more likely that price will lose momentum together with the added
possibility of a reversal.
Traders using pivot points tend to use the “3 strike rule” which is simply this. If price
initially passes through a support or resistance level but fails to clear that level it is
considered a failed attempt. After three failed attempts the trader would generally
consider that price momentum had been lost and close the trade.

Many times, especially when price is in consolidation, price will move in a narrow
range or channel between the pivot point and R1 or S1.

You will often find when trading pivot points that the trading range for the session
occurs between the pivot point and the first support and resistance levels. This is
because so many professional and institutional traders operate within this range.

One of the key points to understand when trading pivot points is that breaks of the
support or resistance levels tend to happen shortly after one of the market sessions
begin. The reason for this is that there is an influx of traders entering the market at
the same time as the new session opens.

These traders study how prices traded overnight, they look at what data was
released and how price reacted to those releases, they look at where price is at
present in relation to support and resistance levels and then they place their trades
accordingly.

During the quieter trading periods, such as between the New York close and the
Asian open (and often throughout the Asian session, which is the quietest of the
trading sessions), price may remain confined for long periods between the pivot level
and the first support or resistance level.

As you can see, trading with pivot points really does have a lot to offer the trader in
terms of entry and exit points as well as offering lot scaling points, reversal points
and take profit levels.

One of the downsides to using standard pivot points is that they do not fully take into
account volatility or trading volume.

When trading with standard pivot points alone it can be quite a trial deciding whether
to enter a trade and whether to stay in a trade or exit that trade or whether it would
be more prudent to stand aside.

This is where using Stealth Forex Weighted Pivot Points as part of the Stealth Forex
Trading System can really give you an extra edge.
 Using Stealth W Pivots™ as part of your Stealth Forex
Trading System™

We shall take a look at incorporating SWP as part of your overall Stealth Forex
Trading System™ and also using SWP just to define Take Profit Levels and refined
Stop Loss positions.

First we look at TP levels with a Long (buy) trade.

The Stealth LCD and Stealth BUY SELL changed colour in unison and were in
agreement with the Stealth Hybrid which initiated this Long (buy) trade.

This Eur/Usd trade opened at 1.2521

The first objective would have been to place a tight stop loss order 10 -15 pips (plus
broker spread) below the Pivot Point at 1.2483 to protect our trading fund in the
event that the trade failed.

The next objective would be to decide our take profit levels, which would have been
TP1 at R1, TP2 at R2 and TP3 at R3
As price reached R1 we could have closed the trade and accepted a profit of 36 pips
or we could have brought our stop loss to 10 – 15 pips (plus broker spread) below
R1 to see if there was further profit to be made.

Also, at this point (R1), those traders trading more than one lot should have
considered closing out (scaling) part of the trade.

As price reached R2 we could have closed the trade and accepted a profit of 78 pips
or we could have brought our stop loss to 10 – 15 pips (plus broker spread) below
R2 to see if there was further profit to be made.

Also, at this point (R2), those traders who initiated this trade with multi-lots should
have considered closing out (scaling) the majority of their trade.

As we can see (and as is often the case) although price did penetrate R2 thereby
achieving our TP2 it failed to clear this level and reversed, so our TP3 level was not
reached. This is not at all unusual as R3 represents a severely overbought level.

The above example shows just how important it is to use stop loss orders under
each level as price penetrates that level.

Now we look at TP levels with a Short (sell) trade.

The Stealth LCD and Stealth BUY SELL changed colour in unison and were in
agreement with the Stealth Hybrid which initiated this Short (sell) trade.

This Usd/Chf trade opened at 1.2207

The first objective would have been to place a tight stop loss order 10 - 15 pips (plus
broker spread) above the Pivot Point at 1.2243 to protect our trading fund in the
event that the trade failed.

The next objective would be to decide our take profit levels, which would have been
TP1 at S1, TP2 at S2 and TP3 at S3

As price reached S1 we could have closed the trade and accepted a profit of 25 pips
or we could have brought our stop loss to 10 - 15 pips (plus broker spread) above S1
to see if there was further profit to be made.

Also, at this point (S1), those traders trading more than one lot should have
considered closing out (scaling) part of the trade.

As price reached S2 we could have closed the trade and accepted a profit of 65 pips
or we could have brought our stop loss to 10 -15 pips (plus broker spread) above S2
to see if there was further profit to be made.

Also, at this point (S2), those traders who initiated this trade with multi-lots should
have considered closing out (scaling) the majority of the remainder of their trade.

As price reached S3 we could have closed the trade and accepted a profit of 112
pips or we could have brought our stop loss to 10 -15 pips (plus broker spread)
above S2 to see if there was further profit to be made.

Since S3 represents a severely oversold level, it would be unwise to carry multi lots
beyond this point and all but one lot should be cashed in for profit here and the trade
should be trailed with a very tight stop to lock in as much profit as possible. Of
course, should the LCD signal change colour, then the trade should be closed
immediately.

The above example shows just how important it is to recognise that although price
will often respect support and resistance levels, price will always move to the level
that the market pushes it to.

It should be noted that the stop loss is estimated in our examples at 10 – 15 pips
plus broker spread on the opposite side of the pivot point to our trade direction, but
market volatility will be a factor in deciding the actual stop loss level necessary and
may be different with each trade and will be affected by the time frame in use.
As you can see from the previous examples, it is a feasible exercise to use support
and resistance levels to assist with stop loss placement as well as, or instead of,
using “Stealths”.

Here we will look at using pivot points to assist with trade entry, in co-operation with
the other Stealth Forex indicators and other technical information.

Before we look at this, it should be understood that the more criteria that has to be
met prior to trade entry, the less trading opportunities will be presented, but the
entries that are presented will be of a higher probability.

As you have seen (on pages 3 & 4) we can determine the daily trading bias from the
opening candle on the new day (this is the 00.00 candle on your chart - not local
time).

By using this bias, you can elect to ignore trading signals that do not agree with this
bias. In other words, if the bias is Short (sell) then you might consider only accepting
Short (sell) trades. If the bias is Long (buy) then you might consider accepting only
Long (buy) trades.

Further, you may wish to add the general trend into the equation.

This would then mean that you would only accept Short (sell) trades if:

1. The trend is down

2. The bias is Short (sell)
3. The Stealth LCD and Stealth BUY SELL change to a sell signal
4. The Stealth Hybrid agrees a Short (sell) situation
5. The Stealth Hybrid is NOT showing positive divergence
6. There is sufficient trading volume

This would also mean that you would only accept Long (buy) trades if:

1. The trend is up
2. The bias is Long (buy)
3. The Stealth LCD and Stealth BUY SELL change to a buy signal
4. The Stealth Hybrid agrees a Long (buy) situation
5. The Stealth Hybrid is NOT showing negative divergence
6. There is sufficient trading volume

You would then use the support and resistance levels to determine your profit
targets.
Longer term traders might use the new opening candle (bias) each day together with
all of the forgoing indications to validate remaining in that trade and the new daily
support and resistance levels to monitor the positive progress of the trade.

If a particular support or resistance level fails to be cleared by price, the longer term
trader may wish to close out the trade after 3 or more failed attempts.

The longer term trader may also wish to use the daily support and resistance levels
to monitor overbought and oversold levels as the trade progresses, allowing stop
loss adjustment to be fine tuned during extreme overbought or oversold situations to
protect profit.

It is most important to ensure that the pivot point is reset each day

To do this, any time after the close of the 00.00 (chart time) candle, simply
click to another time frame and then back to the time frame that you are
currently using and the pivot point and S & R levels will reset to the current
day.

Please remember that pivot points work best Tuesday - Friday