Pivot Points - John F. Carter

[fintrans 10]

Hi folks:

 

I need to start this question with a quote from John F. Carters' book 'Mastering the Trade':

 

'It is important to note that it is extremely rare for a stock index to hit its daily R3 or S3 levels. This is important to know because if a market rallies to R2 or sells off to S2, that usually ends up being the dead high or the dead low of the day'.

 

Well - if anyone was watching EUR/USD on Friday you will note that it shot through (almost without stopping) the daily R1 and R2 and closed around the mid point between the weekly pivot value and the weekly R1 value (which just also happens to be the same value as the monthly pivot).

 

My questions are:

 

1 - In a case like this which pivot point values would be key to watch in the next week (assuming that you are trading intraday)? What I mean to say is that in a case like this it would appear that the daily pivots are no longer valid.

 

and

 

2 - The quote above specifically mentions stocks (which I mostly trade) but is it reasonable to expect the same 'rules' as it were to apply to forex pairs?

 

and

 

3 - Do you think that the above i.e. pivot point trading also applies to commodities?

 

(Hope you don't mind me asking these questions here - new to THESE forums - found them while searching for contact information for John F. Carter or his organisation).

 

Regards,

 

Dale.

[brownsfan019 17]

Dale - welcome to the board.

 

Here's my 2 cents on pivots and just about any other indicator out there - sometimes they work, sometimes they don't.

 

My only suggestion is to not use them blindly or at least understand that sometimes the pivots are not going to be accurate. Other times they will peg each move and it will seem too easy. The end result being that you need to exploit the times it works well and not take a bath on days they don't. Again, this can be said of most/all indicators.

[torero 10]

If you find a confluence of other indicators with the important pivot levels such as fibs or S/R levels, then there is higher probability the pivot will hold (at least more than pivot without other indicators support that same area). I tend to use pivots with a grain of salt. But if it coincides with fib levels and HLOC of previous day, week, month, then chances are better.

[fintrans 10]

Good morning, and thanks for the replies.

 

It would appear that pivots play a key role in the way I trade.

 

I trade mainly (almost exclusively) the DAX using the Profitunity (Chaos) Trading System by Bill Williams (for those of you not familiar with this system one of the things that it relies heavily on are fractals which basically indicate a change in direction and support and / or resistance).

 

Anyway - I started to notice that every time a fractal was hit and the corresponding stop order was triggered the price would almost immediately retract and it could be days before the price then moved past the fractal position into a profit and this was getting to me. I started placing orders further away from the fractals but then you miss too much of a move.

 

Having read John F. Carters book I decided to draw the pivot levels on my DAX charts last week and I could not believe my eyes at the time: every single time this happened it was at the exact point where a pivot line was drawn (give or take one DAX point - it is that accurate - and I went back weeks to check)!

 

Anyway - having solved THAT problem - for some or the other reason - I was short on the EUR/USD on Friday - and I was really hoping that it would retrace to Friday's daily pivot level some time today (Monday) - but right now it's still moving up - so I've taken the loss - and will stick to what I know! All I can say is that thank goodness those were not DAX positions - the DAX can wipe you out in a heartbeat if you're not careful - but when it moves - you're in the $$$ (I ALWAYS use stops on the DAX)!

 

What is not clear in the book is that if an instrument is expected to hit either its pivot point or R1/R2/S1/S2 on the daily chart - would it be a reasonable assumption to make that this would apply to the weekly and monthly charts as well i.e. on a weekly basis may hit the previous weeks pivot levels during the current week and on a monthly basis may hit the previous months pivot levels during the current month or are pivots only valid on a day to day basis?

 

I have a hard time with fibo levels - I never know which points to take and I have read so much conflicting instruction as to where to start and where to stop - so the end result is that they end up being meaningless to me but I'll give it another bash. Put it this way - if I draw the pivots first then I can gauge which would be the right points to take for the fibo levels (although that's like 'putting the cart before the horse' as it were I would imagine)!

 

Regards,

 

Dale.

[Nick1984 10]

I've usually found that around pivots its a good idea to watch the tape and volume closely to see how strong the movement towards the pivot is. Like Brown said indicators don't always work!

[james_gsx 16]

I've usually found that around pivots its a good idea to watch the tape and volume closely to see how strong the movement towards the pivot is. Like Brown said indicators don't always work!

 

I agree completely, and you'll usually notice the tape move faster when you approach a pivot level. Just another reason to follow your stops, you won't always be right and things don't always work out.

[dalby 10]

one key thing with pivots is that the first test of a pivot USUALLY will hold. carter claims this, and i have found it to be true. and you will get at least a 5-8 pt bounce (on YM).

 

the first test of a pivot level is practically a 'gimme trade'. it's a higher probability setup.

 

of course, you have to watch market internals, but a good general rule is to take the first test of a pivot level if market internals are not saying otherwise

[fintrans 10]

Hi, and thanks for all the input.

 

I actually did reply to this thread a few days back but my message seems to have dissapeared (I think there was a problem with the server at some point earlier this week).

 

Anyway - the main reason I wanted some clarity on pivot points was because, at the time, the EUR/USD had shot through all of its pivot levels and of course I was short at the time with no stops so I was trying to figure out if I could reasonably expect EUR/USD to return to one of the previous days pivot levels. I closed the position though and decided to stick to what I know (I don't usually trade forex pairs - not anymore anyway). Just as well I did because it's still sitting way above the levels where I decided to close my position!

 

Having said that I normally (almost exculsively) trade the DAX using Bill Williams' Profitunity (Chaos) Trading System (and its various variations). For those of you not familiar with this system it relies on fractals for entry points (in one of the versions anyway). What I started to notice was that every single time a fractal entry point was reached the associated stop order would be triggered and the position would go into a 'tiny' profit situation and then the price would almost immediately retract and take out my stop (needless to say I ALWAYS use stops on the DAX as the DAX can take you out in a heartbeat if you're not careful). I wanted to find out why this is because it is not addressed by Bill Williams. What I found was (thanks to 'Mastering The Trade') that just about every single time the fractal was sitting at one of the key pivot levels. Coeincidence? Not likely. It just happens far too often and with too much predictability for it to be coeincidence. I mean to say - sometimes - the fractal signal is EXACTLY on the pivot point (not a few points either side but EXACTLY)!

 

Of course this leaves me with a huge dilemma i.e. when I theoretically should, for example, be placing fractal sell orders (according to Bill Williams) I should be placing fractal buy orders (according to John F. Carter). I'm still trying to figure out a way to catch the pivot retractment AND the fractal a bit later on but still have not come up with an answer. I mean - 'you can't have your cake and eat it' - or can you???

 

Maybe someone could put some input in here. Let's say that at market open the price is between yesterdays pivot level and S1. I would invariably be getting a fractal sell signal at the same point as S1. The price moves down to S1, triggers my sell stop order, and then retracts. How would you play this taking the pivot points into account? The added problem is that at some point during the day / week the price in this example will invariably move through S1 turning the Profitunity entry into a profit. If I understand John F. Carter correctly you should wait for the price to go through the pivot point and then, depending on how far past the pivot it went, you should place a limit order order to catch the retractment if any. The problem for me with this is that the price mostly does not go through the pivot but hangs around for a while and then retracts so you are never sure whether or not it is actually going to keep going in one direction or retract!

 

Another thing that is not addressed in the book: are pivot levels only applicable on a daily basis i.e. an instrument will trade between its daily pivots and pivot resistance and support levels BUT - on a monthly basis - should and instrument trade between its monthly pivots and pivot resistance and support levels - on a weekly basis - should an instrument trade between its weekly pivots and resistance and support levels - and so on and so forth?

 

Regards,

 

Dale.

[ensoniq 10]

This is a pretty old thread now, but I just stumbled upon it and wanted to add a few comments.

 

Carter's approach (which may not be the only valid one) to pivots is very simple. I'll try and describe it in a few points:

 

1) Abandon any pre-conceived ideas that you may have about the pivots acting as support or resistance - you cannot predict this in advance. Instead, try to think of the pivots as levels where somethingsignificant will happen.

 

2) Wait to see how price reacts when it approaches the pivots. Do not try to second-guess breakouts or reversals.

 

3) If price breaks cleanly through (ie 'ignores') a pivot level, then a pullback to that violated level can be bought or sold in the direction of the breakout.

 

4) The only time that Carter will anticpate a pivot reversal and place orders in advance is when volume is extremely low.

 

Do not attempt to use this on any instrument that is not pit-traded, doesn't have a regular cash session, or doesn't closely mirror such instruments (the YM trades electronically and off-floor, but its price always follows that of the Big Dow contracts which are pit-traded, for example, making it acceptable).

 

You cannot expect pivots to have any significance outside of the pits, so Forex Pivots are a waste of time.

 

The other thing that you will need to consider (I don't have the answer to this!) is whether floor traders still even use pivots, or whether they are now an outdated tool.

 

Hope that's all helpful to anyone reading this old thread!

[Mysticforex 13]

Wow, this is an old thread.

 

I find Pivot Points quite useful in my Forex Trading. Particularly on the GBP/CHF, and the GBP/JPY. Probably, because when these pairs move they do so in no uncertain terms.

 

On the attached chart, the BLUE dashes are the Daily Pivots, the Red Dashes are R3, S3 levels, and the wider orange lines are the Weekly Pivots.

 

Now, I am not describing my system, just pointing out some interesting observations.

On Mondays, R3 or S3 is hit better than 95 percent of the time. During the week ( usually sooner than later ), the Weekly Pivot is hit approx 92 percent of the time ( the last time I ran the numbers was about 1.5 years ago ).

I use a 20 pip buffer, if price comes within 20 pips of a pivot point, I consider it hit.

Now, given this high probability I am sure there are many smart traders who can figure out a way to make money with it.

The Key of course is Backtesting, Backtesting, Backtesting. Oh, and did I mention Backtesting?

How do you enter? Where's the optimal Stop Loss? etc.

The chart displayed if the 4 hour gbp/chf. MT4. Those Pivot level indicators which stay on the chart ( Missed Pivots is an entirely different but interesting subject ).are allso available for an excellent program called "Forex Tester ". No, They don't pay me to plug it. I have been using it since 07 and love it.

 

Here's the Chart, Hey, imagine that, came dwn and slammed the Weekly Pivot today!

[JMC 10]

Since we're bringing up the subject, I figured I'd add my two cents. When trading ES, I've found pivot levels, especially daily R2 and S2, when combined with confluence of readily visible support and resistance to be incredibly effective. Weekly pivot levels are even more powerful and can often stand alone w/o confluence.

 

For instance, ES reversed at R2 yesterday around 10:00am est and sold off until lunch time, stopping at the weekly pivot at 1279.25. This weekly pivot has come into play during each of the last three trading sessions and has resulted in significant reaction in price each time.

 

Tough part is once your in at one of these levels, you have to manage the trade. I typically enter on the first test of a level with a 2 point stop. I will sit through one additional retest (or slight breach) before moving my stop to break even once price has moved away. I've found I've come to prefer taking a full stop as opposed to bailing on a trade before it has a chance to work out. For me, I feel it's better to be more selective on when and where you enter then to micromanage the trade.

[Tams 20]

Since we're bringing up the subject, I figured I'd add my two cents. When trading ES, I've found pivot levels, especially daily R2 and S2, when combined with confluence of readily visible support and resistance to be incredibly effective. Weekly pivot levels are even more powerful and can often stand alone w/o confluence.

 

For instance, ES reversed at R2 yesterday around 10:00am est and sold off until lunch time, stopping at the weekly pivot at 1279.25. This weekly pivot has come into play during each of the last three trading sessions and has resulted in significant reaction in price each time.

 

Tough part is once your in at one of these levels, you have to manage the trade. I typically enter on the first test of a level with a 2 point stop. I will sit through one additional retest (or slight breach) before moving my stop to break even once price has moved away. I've found I've come to prefer taking a full stop as opposed to bailing on a trade before it has a chance to work out. For me, I feel it's better to be more selective on when and where you enter then to micromanage the trade.

 

can you post some chart with notes to describe your observation?

 

thanks

[JMC 10]

can you post some chart with notes to describe your observation?

 

thanks

 

Sure no problem. On my laptop this weekend. I'll post on Monday when I'm back at the office.

[Mysticforex 13]

Monday, both GBP/CHF and GBP/JPY hit S3 today. G/C opened on it's Weekly Pivot so no trade. A nice Weekly Pivot trade on G/J though.

[Tams 20]

Monday, both GBP/CHF and GBP/JPY hit S3 today. G/C opened on it's Weekly Pivot so no trade. A nice Weekly Pivot trade on G/J though.

 

do you have statistics on the hit and miss of your weekly pivots?

[Mysticforex 13]

do you have statistics on the hit and miss of your weekly pivots?

 

 

I belong to an informal trading group. We used to meet once a week and discuss charts, ideas, etc. Now we just shoot off emails to one another.

One of our members ran all the numbers for GBP/CHF going back 10 years on Excel.

I think the exact number was 94.6%

[Tams 20]

i belong to an informal trading group. We used to meet once a week and discuss charts, ideas, etc. Now we just shoot off emails to one another.

One of our members ran all the numbers for gbp/chf going back 10 years on excel.

I think the exact number was 94.6%

 

.......... Lol ..........

[Mysticforex 13]

I have today's weekly pivot @ 15042 on the gbp/chf.

I have placed an entry order @ 14972 with a TP @ 15022 ( 20 pip buffer ).

 

Since R3 is between current price and the WP, I have another entry order from R2 to R3.

As I stated in an earlier post, this pair has a high probability of hitting R3 or S3 on a Monday.

If it looks like it's heading down ( drops below the Daily Pivot, I will look for a setup to TP at S3. I will leave the entry order to the WP open until Thurs.

 

I am a bit on the conservative side, with one order. Here's what a friend of mine does.

He has an OBC in Belize, and has opened several accts with Gain Capital with 500:1 margin. On 1 acct, he will place 10 entry orders starting at 70 pips from the WP, 5 pips apart, ( 14972,14977,14982 etc ) al TP ing @ 15022 ( 20 pip buffer ). for a total TP of 275 pips. His stop loss is a Margin Call ( that's why the sub acct. ).

He calls it "The Monday Accelerator".

 

 

I have kicked myself in the rear more times than I can count for not stacking the way he does. ( I did it once but the whipsawing was just too stressful for me ). I risk 80 pips to make 50 because of the high probability.

[Mysticforex 13]

R3 trade opened and closed for a profit.

WP trade opened.

[Mysticforex 13]

WP trade closed in profit.

 

I am not going to bore everyone to death and post more trades.

I simply wanted to bring this to people's attention. If the information sounds

like it has some potential, start doing some backtesting. I'm sure even moderately

experienced traders can figure out a way to make money with this.

 

 

Chris

[Mysticforex 13]

Here is the Missed weekly Pivot Point I referred to in Wedsday's Webinar, as a possible short target.

[safira218 10]

Hi, and thanks for all the input.

 

I actually did reply to this thread a few days back but my message seems to have dissapeared (I think there was a problem with the server at some point earlier this week).

 

Anyway - the main reason I wanted some clarity on pivot points was because, at the time, the EUR/USD had shot through all of its pivot levels and of course I was short at the time with no stops so I was trying to figure out if I could reasonably expect EUR/USD to return to one of the previous days pivot levels. I closed the position though and decided to stick to what I know (I don't usually trade forex pairs - not anymore anyway). Just as well I did because it's still sitting way above the levels where I decided to close my position!

 

Having said that I normally (almost exculsively) trade the DAX using Bill Williams' Profitunity (Chaos) Trading System (and its various variations). For those of you not familiar with this system it relies on fractals for entry points (in one of the versions anyway). What I started to notice was that every single time a fractal entry point was reached the associated stop order would be triggered and the position would go into a 'tiny' profit situation and then the price would almost immediately retract and take out my stop (needless to say I ALWAYS use stops on the DAX as the DAX can take you out in a heartbeat if you're not careful). I wanted to find out why this is because it is not addressed by Bill Williams. What I found was (thanks to 'Mastering The Trade') that just about every single time the fractal was sitting at one of the key pivot levels. Coeincidence? Not likely. It just happens far too often and with too much predictability for it to be coeincidence. I mean to say - sometimes - the fractal signal is EXACTLY on the pivot point (not a few points either side but EXACTLY)!

 

Of course this leaves me with a huge dilemma i.e. when I theoretically should, for example, be placing fractal sell orders (according to Bill Williams) I should be placing fractal buy orders (according to John F. Carter). I'm still trying to figure out a way to catch the pivot retractment AND the fractal a bit later on but still have not come up with an answer. I mean - 'you can't have your cake and eat it' - or can you???

 

Maybe someone could put some input in here. Let's say that at market open the price is between yesterdays pivot level and S1. I would invariably be getting a fractal sell signal at the same point as S1. The price moves down to S1, triggers my sell stop order, and then retracts. How would you play this taking the pivot points into account? The added problem is that at some point during the day / week the price in this example will invariably move through S1 turning the Profitunity entry into a profit. If I understand John F. Carter correctly you should wait for the price to go through the pivot point and then, depending on how far past the pivot it went, you should place a limit order order to catch the retractment if any. The problem for me with this is that the price mostly does not go through the pivot but hangs around for a while and then retracts so you are never sure whether or not it is actually going to keep going in one direction or retract!

 

Another thing that is not addressed in the book: are pivot levels only applicable on a daily basis i.e. an instrument will trade between its daily pivots and pivot resistance and support levels BUT - on a monthly basis - should and instrument trade between its monthly pivots and pivot resistance and support levels - on a weekly basis - should an instrument trade between its weekly pivots and resistance and support levels - and so on and so forth?

 

Regards,

 

Dale.

 

The other thing that you will need to consider (I don't have the answer to this!) is whether floor traders still even use pivots, or whether they are now an outdated tool.

[Ingot54 13]

WP trade closed in profit.

 

I am not going to bore everyone to death and post more trades.

I simply wanted to bring this to people's attention. If the information sounds

like it has some potential, start doing some backtesting. I'm sure even moderately

experienced traders can figure out a way to make money with this.

 

 

Chris

 

Far from being bored, Chris - I find this kind of information extremely helpful.

 

In fact I see that just the R3/S3 strategy could be enough to keep a trader happy - a one-a-week trading situation.

 

I too find the DD too much waiting for the Weekly Pivots to be hit, but the R3/S3 is a different matter.

 

Interesting phenomenon ... thanks for sharing.

[Ingot54 13]

The other thing that you will need to consider (I don't have the answer to this!) is whether floor traders still even use pivots, or whether they are now an outdated tool.

 

Safira - I would be extremely pleased if the use of Pivots DOES become outdated and obsolete - that means that those of us who use them will once again have an edge!

[Fat Tails 10]

Safira - I would be extremely pleased if the use of Pivots DOES become outdated and obsolete - that means that those of us who use them will once again have an edge!

 

Pivots work for a few reasons:

 

(1) The main pivot represents yesterday's value, as it is located between the close and the midline.

 

(2) Pivots convey information on yesterday's volatility. This is not always easy to use. After a narrow range day, the pivot levels R1 or S1 could be meaningless. After a wide ranging day you may find that even midpivots are useful. To compensate for the impact of a 1-day volatility measure I also look at average daily historical volatility.

 

(3) Pivots are simple to calculate and do not change throughout the day.

 

(4) Pivots are meeting points of floor traders and electronic traders that have joined them. They partly work as self-fulfilling prophecy. If nobody watches them anymore, they will stop working.

 

(5) The position of price versus the main pivot and the current open can be used as a trendfilter.

 

(6) You can also use rolling 3 day pivots as a trend filter. Together with the balance point, which is the 3-day midline they form a nice band.