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Showing results for tags 'pivots'.
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Initially used by floor traders, pivot points have become widely popular among the trading public. Pivot points are simple mathematical calculations used to determine support and resistance levels based on the close, high, and low. Depending on a traders preference, one may choose to use the midpoints, weekly, and monthly pivot levels in combination with the daily pivot levels. Pivot points can also be ranked in terms of importance: monthly coming first, weekly second, and the daily pivot in third. Similar to moving averages, the 200 period moving average will act as a stronger support/resistance than the 20 period moving average. This concept can be applied to pivot points as well. The S3 and R3 pivot points are usually a good level to fade since price will usually remain between these two levels. I will use the midpoints for the daily pivot point calculations but not for the weekly and monthly pivots. Here is the formula I use for pivot points: R3 = R2 + RANGE (same as: PP + RANGE * 2) R2 = PP + RANGE R1 = (2 * PP) - LOW PP = (HIGH + LOW + CLOSE) / 3 S1 = (2 * PP) - HIGH S2 = PP - RANGE S3 = S2 - RANGE (same as: PP - RANGE * 2) Simply divide the two pivots to find the midpoints. Example: (S1+S2)/2 = midpoint There are some rules when applying midpoints to the daily pivot calculations. In trading the Dow mini-sized futures contract, the distance between the two pivots must be over 40 points when applying the midpoint. The only exception to this rule is when the midpoints line up with the previous day’s high, previous day’s low, weekly pivot, monthly pivot, value low, value high, POC, or an unfilled gap. By using the midpoints for the daily pivot calculation, you will get 13 set of numbers between S3 and R3. Calculating the weekly and monthly pivots (without midpoints) will give you an additional 14 set of numbers. This will give you a total of 27 price levels. Advanced Pivot Point Analysis My core trading method is based on identifying key price levels using pivot point cluster zones. A cluster zone is an area in which pivot points line up within 10 points of each other. In addition to the daily, weekly, and monthly pivots I will identify the previous day’s high, previous day’s low, previous day’s 50% range, unfilled gap, value low, value high, and POC (point of control). This gives me a total of 33 price levels. What I am looking for is any of these pivots to line up with each other and create a cluster zone. Let’s take a look at the chart posted below. On August 21st, we have the following: High: 11418 Low: 11342 Midpoint between daily pivot and R1: 11413 Daily Pivot: 11389 Value High: 11381 Previous days 50% range: 11365 S1: 11361 Value Low: 11349 Midpoint between S1 and S2: 11339 By looking at these few numbers, we are able to come up with 4 key cluster zones. The first zone is the cluster between the high at 11418 and midpoint at 11413. This 5 point range is a cluster zone that will act as key resistance/support. The second zone is the cluster between the daily pivot at 11389 and value high at 11381. I will take the midpoint of these two levels at 11385 to base my trading decision. The third zone is the cluster between the previous days 50% range at 11365 and the S1 pivot at 11361. This area will also act as key resistance/support. The fourth zone is the cluster between the low at 11342 and the midpoint at 11339. This will be a key support zone. Of course you will have trading days when only 1 or 2 cluster zones exist. On these days I look to get into a sniper trading mode, looking for one or two good opportunities and focusing on my entry points. Trading setups using these cluster zones goes beyond the scope of this article. I just want to introduce a different method of pivot point analysis. Learn more about this trading method on my website through multimedia presentations and charts. Good luck and best of trading.
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Hello traders, this is my first post on the forum. I'm getting started with some paper trading using pivot point strategy and I have a question about how to approach this situation from a purely strategic position and make a decision: Thursday (yesterday) I bought PM just below the pivot, at $73.26, with the intent of selling when the stock hit R1. R1 for PM on Thursday was $75.10. However the stock didn't make it that far, and topped out at $74.50, and then closed at $73.78. I decided to hang onto it overnight and see what was on tap for Friday. Calculating Friday's pivots of course yielded different numbers for R1 than Thursday's. Friday's R1 is $74.49. Question 1: Which day's R1 should I use w/rt selling this position? What is the best way to approach this situation from a strategy based on pivot points? As it turns out, PM surpassed Friday's R1 and topped out at $74.59. It was on a roll so I held onto it, hoping it might nudge up a little closer to Thursday's R1. But it didn't get that far, and ended up closing at $74.52 - above Friday's R1 but below Thursday's R1. Once again I decided to hang on, though thinking it might have been wise to sell off right at the end of the day. Question 2: Should I just sell it now or wait till Monday? Will there be a potential intra-week volatility that would be better simply avoided? Insight from seasoned experts would be appreciated. As I paper trade I see and learn from my mistakes on a daily basis and would like to base my future instincts on sound strategy. Thanks!
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In this article we will discuss about a widespread, well-known key element of technical analysis. Why do you think technical analysis especially some elements work so well for financial markets? Why do you think Fibonacci levels are usually strictly followed? Because thousands and billions of traders and computer programs for trading use these elements. This way everybody acts the same at the same time… This is why we decided to present in the category of technical analysis, the most used and well-known methods of predicting financial evolution. These methods are easy to understand and are very efficient. We will discuss about pivots. We will find out what pivots are and how they are calculated. We will use them in our charts and we will see how they act. We will discover how useful they are and, at the end, we will draw the conclusions. We will use pivots daily in our analyzing and trading system. 1. What are the pivots? Pivot points are a technique used by professional traders and market makers to determine entry and exit points for the trading day based on the previous day’s trading activity. It’s best to use this technique after determining the direction of the trend. Simply put, a pivot point and its support/resistance levels are areas at which the direction of price movement can possibly change. Pivots can be extremely useful in Forex since many currency pairs usually fluctuate between these levels. Pivots can be used as well in indices’ market, DOW and S&P being trade by the same people, so the same methods are used. 2. How are the pivots calculated? The pivot point and associated support and resistance levels are calculated by using the last trading session’s open, high, low, and close. The calculation for a pivot point is shown below: Pivot point (PP) = (High + Low + Close) / 3 Support and resistance levels are then calculated off the pivot point like so: First level support and resistance: First support (S1) = (2*PP) – High First resistance (R1) = (2*PP) – Low Second level of support and resistance: Second support (S2) = PP – (High – Low) Second resistance (R2) = PP + (High - Low) S3 = S2 – (High – Low) R3 = R2 + (High – Low) Don’t worry you don’t have to perform these calculations yourself. We will automatically insert these values in our analysis. Also keep in mind that some charting software also provides additional pivot point features such as a third support and resistance level and intermediate levels or mid-point levels (levels in between the main pivot point and support and resistance level). We presented the classical method of calculating pivot points. There are also some newer alternatives such as: Woodie, Camarilla, DeMark. For a deeper view into these methods you can find them on the internet. We don’t recommend spending time with this because only a few traders actually use them. So it hardly counts in market’s evolution 3. Chart examples for Dow and e-mini S&P 500. Let us study a few days in market evolution and see how these indices acted: a. We will first discuss about the day before Dow Jones reached the highest point in its entire evolution. Based on last trading session’s data, we calculated the pivot points. During the first part of the day Dow tried twice to grow above 14.150 and each time bounced back. The price is going down towards the day’s pivot. After the accumulation zone, the price descends roughly to the first support (S1). After another accumulation zone, the price goes down until it meets the second support. The Low of the day was 14.000 points. The price will grow to S1 and the day closes in that area. We can see how precise the market evolution was regarding the two estimated values. b. This is the analysis for the day of June 19th 2007. The price bounced back from the pivot and descended to S1. After an accumulation zone it goes up to the pivot and even reaches R1. Here, the prive bounced back three times and descends subsequently towards S1. The trading session closed at a value near the pivot. We can observe now that the three zones of support, resistance and accumulation overlap the mathematical points we calculated. c. In the next example there is the date April 5th 2007. DOW descends to S1, bounces back, goes up to the pivot and then passes a long accumulation zone and ascends to R1. After another short accumulation zone the price goes up to R2 where it bounces back. The day closes at R1. 4. Conclusions a) As the charts show, these mathematicaly calculated points are extremely useful, the market’s evolution overlapping them. Most of the traders use this method. b) Trading methods based only on pivots analysis can be found and can work very well. These methods can be harmoniously correlated with other methods of financial analysis resulting in a complete and complex trading system approaching financial reality. c) We often use these pivot points amongst other various methods of analysis that we will describe later. Dharmik Team
