How I use pivot point clusters

[Soultrader 12]

This is my core trading concept: using pivot point cluster levels.

 

I am mainly a pivot point player entering and exit around key price levels instead of using indicators. I want to show you how I obtain these numbers:

 

First, I will plot the daily, weekly, and monthly pivots. I use midpoints only for the daily pivots. By rank, I place importance on the Daily Pivot (PP), then S1 - S3 & R1 - R3, then the midpoints. I use the midpoints primarily for exit targets and not much for entries. Then I will plot the value high (VAH), value low (VAL), and point of control (POC). I will then plot yesterdays high and low and the 50% range of yesterdays action. I will also plot any unfilled gaps (I keep a daily spreadsheet for all this data).

 

I know this seems like alot of levels but they are not as complicated as you may think. Once every level is plotted I will look for cluster zones. Anytime two or more pivots line up with each other by less than 10pts (on the Dow mini) I plot this as an ultra key level. These are the levels that I will be looking to trade.

 

I will erase any pivot point that are not significant. When prices do reach these pivot cluster zones, I will watch the tape carefully to look for quick price rejection. I also use a combination of market profile mainly to understand the bigger picture.

[luke24.5 10]

Have you tried using volume delta to determine where initiated buying or selling began a move? I think this may be a better way of determining S/R levels.

[Soultrader 12]

Have you tried using volume delta to determine where initiated buying or selling began a move? I think this may be a better way of determining S/R levels.

 

Interesting.... I am actually not familiar with it. Would you mind explaining this? Thank you

[luke24.5 10]

You need software like Market Delta, TapeReader, TradeMaven etc. that records Bid/Ask info. The delta is the difference between buyers and sellers.

 

Set your bars to any period, (30 min chart correlates well with MP), and watch orderflow.

 

9/106 in ES for example. Early selling entered the market at 10.50. The positive delta dried up and heavy selling drove the market down. When price returned to 1025-50 sellers reentered. (New Resistance) Large lots added to their position. This drove the market down to 1307.75 where the market stalled then retraced a point. Heavy selling again @ 8.50 (new resistance). If you missed the first move it's the area to look for uptick to to enter your short.

 

Sellers started to lose control as everytime they pushed the market down, more buyers entered at the low. Still 8.50 was the line in the sand. The day's negative delta was drying up, and when price crossed 8.50 on the way up with increasing volume, the war was over. Buyers won. 8.50 now becomes support and a test of the high likely.

 

HLC deduced pivots work approximately, but I think you'll find that voulme studies will fine tune them especially if you're an intraday trader.

[Soultrader 12]

This is my first time hearing about volume delta.... but from my understanding a positive delta means more market participants on the bid? And negative delta indicates participants on the ask? I did grasp a picture of the concept and it sounds very interesting in order to pinpoint exact price levels of support and resistance. I will need to look into the software vendors for this.

 

I rely on tape reading alot on my pivot point trading so I am able to time my entries alot better than most traders. But this type of volume analyis can definitely help identify key levels.

[luke24.5 10]

http://www.marketdelta.com

 

Has some good videos to watch. New product coming out is a combination with Investor RT that allows back-testing and I think it allows replay. Not sure on the last statement though. Requires Esignal or DTN IQ Feed.

[grandwiz 10]

I am also interested in this topic. I am still new to market profile but just reading some of the posts in this forum, I have come to accept the importance of market profile.

 

Will be looking forward to some interesting topics on trading with market profile. Not many forums focus on market profile so this should be interesting.

[Soultrader 12]

Thanks for the link luke24.5. I will need to check that vendor out. I never knew data vendors came out with market profile this advanced.

 

I love playing with new software and tech related stuff. The problem in trading is that I get too caught up trying to build new strategies using new indicators. I guess I am old fashioned in a way that I like keeping things very simple and do not really like changing things once I find something that works.

 

I always end up going back to my own trading methodology that I feel comfortable with. Just by looking at the features and functions of the data vendor is pretty overwhelming.

[boze 10]

http://www.marketdelta.com

 

Has some good videos to watch. New product coming out is a combination with Investor RT that allows back-testing and I think it allows replay. Not sure on the last statement though. Requires Esignal or DTN IQ Feed.

 

Very interesting.... this tool will definitely help in identifying possible breakouts or breakdowns from consolidation.

[ezduzzit 10]

Some interesting posts here for sure regarding both market and volume profile. Interesting videos as well but if you are really into trading in that manner I don't think market delta can even come close to the tools available at topgunsoftware.com based on what I have heard and seen. Here is a link to the video for trading futures with their tools and I have no affiliation with them whatsoever... Learn How to Trade the S&P Futures = TopGun Software

 

Also I just want to say that so far it looks like you guys have some really useful forum content here for a newbie like me.. so thanks for that.

[Soultrader 12]

Glad you like the site. That is a very interesting piece of software. Are you using it for your trading?

[ezduzzit 10]

No, I don't trade with that topgun software toolset yet. As I have mentioned I am somewhat of a newbie trader (anybody with less than 5 or 10 years is a newbie I think). As an ex-banker, I already knew that the big dogs move the markets and the fear and greed of the retail players like myself is not what moves the markets but what loses money in the markets as those big players lead us by the nose to and fro.

 

It took me a few months to get past the initial foolish holy grail indicator search but I knew there just had to be some tools in the market that really got behind the scenes to break out and show what the big dogs are doing as they do it. I looked at volume spread analysis briefly and then moved on to that marketdelta site. However a tip from a much more seasoned trader brought me to that topgunsoftware.com site and I was totally captivated by what I saw there.

 

I will be interested in hearing further opinions about it from you and other more experienced traders here in the forum who might have the time to give it a look-see. I watched the futures video a few times to distill the essence of what he was keying off of to trade and it just made so much sense compared to the drivel that most of us are told to follow in hopes of being successful each day.

[Soultrader 12]

I just watched the video for the first 5 minutes but it makes perfect sense. The reason it is appealing to me because all the informtion used in the software is pure info. As you may have noticed, I hate using indicators. But the topgunsoftware uses tools to understand the footprints of market participants. I may end up taking the free trial on their site. I found some tools that I may want to try out. Thank you for posting it out. I am sure alot of market profile traders may want to take a look at the software.

 

Are you currently trading the S&P's? What kind of methodology do you apply to your trading?

[ezduzzit 10]

In a nutshell, I looked at and trialed every trading indicator I could get my hands on and mostly found little of value. All those methods based on lagging indicators are a large part of the reason that 90+% of traders give away their money in the markets.

 

I finally moved to short period Jurik moving averages along with ADX with DMI (though not on standard settings) as my confirmation of momentum and timing of entry and exit, in addition to TICK and TRIN. That has worked fairly well, but hungering for better I looked briefly into market and volume profile. Dual auction theory and all was a great concept but I could see the info and tools available to trade it were rather pitiful until I stumbled upon this TG site we have been discussing here.

 

I do not trade the ES as I feel it is much too short ranged and cuthroat. I traded the YM but after several forays into the mini Russell I think I have found a home. Despite guru comments to the contrary I have found the mini Russell to provide the best bang for the buck at least during current periods. Your execution has to be good and you can't be timid, but it often trends better and smoother than the other two and it is hard to complain about the monetary returns either.

 

In my own trading I focus a lot on pivots and other S and R points that develop throughout the day and frankly, I learned more than anything else from a little method called Pivot Magic before running into market and volume profile ideas. At best, I would consider what I have been trading with as "moderate" probability trading, whereas what I have seen a glimpse of now which seems the real "high" probability trading. I don't want to say much more than that until I have had a chance to look into it further.

[Soultrader 12]

ezduzzit, what exactly is Pivot Magic? I have heard of it but I am not familiar with it.

 

Also, are you mainly a pivot based trader? Do you use market profile in your trading? It looks like you have been testing alot of different methodologies. You may have realized already that indicators are practically useless and relying on them too much will not force one to truly understand the art of trading.

 

I personally have worked with the ADX in the past but I found it better on a daily chart than an intraday 1,3,5 min charts. I use a 233 tick chart. I have not yet traded the Russell yet. Does it mimic the dow or the S&P?

[ezduzzit 10]

Yes, I am basically to this point a support and resistance trader, which of course is more than the morning's posting of the floor pivots. Pivot Magic is a little course put out by a fellow named Asher Landesman, who believe it or not is a CPA, one of the first I have ever come across who could trade, heh heh.. but of course the same could be said for bankers so I will be quiet about that now.

 

I do not as yet use market profile in my trading as I felt the tools to do so up to this time were quite weak. I think you were right in your primary assessment of this new site in that it ferrets out the footprint info to give you a true edge in running alongside the real market movers as opposed to getting slaughtered alongside the individual retail players.

 

As to indicators, I disagree with you slightly. They have GREAT predictive capacity. Yes, no doubt they are terribly lagging but just think of the millions of retail traders who trade with them! Much like Fibonacci, it causes reactions in the marketplace that you can "almost" rely upon a good percentage of the time as you know what their signals are going to be telling them to do, regardless of the real underlying current in the market which they cannot see and do not understand. That gives them predictive value to those traders who do understand how those indicators get played.

 

ADX/DMI is quite useful on 5 and 15 min charts with the right settings, but again is still a laggard. As indicators go, I feel it is one of only a very few semi-useful ones. However, without a little luck and excellent money management, the pros will still separate you from your trading capital over time. I feel you are spot on in your assertion that those relying on indicators may never really understand what moves the markets and how to flow with it. It forces them to become and remain "impulse" traders which over enough time is sure to lead them to financial ruin.

 

Nothing at all wrong with trading a 233 Tick chart that I can see, however, I am perhaps a little less fixated on tick versus time period bars as you seem to be.

 

As to the Russell, just pop it up alongside your normal chart(s) for a week or so and watch how it moves. I think you will find a fairly strong correlation in most of the e-minis but it takes screen time to find your favorite and of course things do change over time. Today has been an excellent and readily tradeable day on the e-mini Russell once again, but that is just my personal opinion.

 

After all my study, testing and live trading thus far I can only say the following: There are tons of would be "experts" out there in trading separating people from their money via marketing pure junk (read as more and more indicators and black box systems, methods, etc.). On the other hand the small percentage of actual pro traders (who closely protect their own methods) claim there are no secrets to trading. I think the truth falls somewhere in the middle. The holy grail of trading I think is centered in two keys: 1) The "discipline" to stick to a simple trading plan with a tremendous focus on money management and position sizing to protect your trading capital and 2) Centering your trading plan and rules upon info that shows what the big dogs are truly doing to move the market and riding those moves piggyback as well as you can.

 

Now I think it is time for me to stop posting and get back to a review of my day's trading before I risk providing even more laughable fodder for the real pros who visit your forum!

[luke24.5 10]

EZ, I demo'd the new Market Delta last week and am trying Topgun this week. Not been able to find any reliable pivot tools inTopgun, but I can figure those out pre-market and then adjust as the day goes on anyway. But I haven't been able to get it set up to see the volume profile like they show on their site. Also, I'm getting an error msg from esignal that says I didn't sign up for enough symbols when I try to use the B/S pressure. Will have to contact them in the AM.

 

What setup are you using to watch the Russell w/ TG? As for me, I still prefer MD footprint charts at MP S/R levels but I'd like to be able to watch market internals in real time adn TG may do that better.

[ant 10]

luke, if you have TradeStation, you might want to take a look at the Market Delta simulation tool I made available in the thread below. I use it with Market Profile as well.

 

http://www.traderslaboratory.com/forums/technical-trading/388-market-delta-footprint.html

[Soultrader 12]

I admit, I pushed it too far by saying indicators are useless. I know they can be used to trade successfully but Linda Raschke said it best,

 

"I've known hundreds of professional traders throughout my career. I don't want to disappoint you, but I know of only two who were able to make a steady living for themselves with a mechanical system.â€Â

 

On the other hand the small percentage of actual pro traders (who closely protect their own methods) claim there are no secrets to trading. I think the truth falls somewhere in the middle. The holy grail of trading I think is centered in two keys: 1) The "discipline" to stick to a simple trading plan with a tremendous focus on money management and position sizing to protect your trading capital and 2) Centering your trading plan and rules upon info that shows what the big dogs are truly doing to move the market and riding those moves piggyback as well as you can.

 

I completely agree with this. There are no secrets to trading. A simple trading plan is enough to generate a steady income. The key to success is understanding your methodology 100%, believing in it, following your trading plan, and having discipline. But I think the tricky part is that although you will see professionals trading as if trading was easy... to get to that level of comfort took alot of hard work. Trading should be easy, but that is after you graduate from the hard part.

[ezduzzit 10]

Luke.. I have unfortunately been far too busy with out of town visitors lately to even keep up with posting here let alone take the free trial at TopGun. My initial reason for posting that site was to get the opinion of those more experienced than I (that opens it up to most! heh,heh).

 

I am a little surprised to hear that you could not find a pivot tool as the video on Forex at that site clearly shows one in use on their charts.

 

I suspect if you contact them, they can help you get that fixed and also tell you how to get the volume profile set up properly to reflect as it shows in their examples. I currently use E-Signal myself and since I only trade e-minis I suspect I too would have to add some additional data, such as NYSE, etc. but I shall have to call Scott Wilks over there when my visitors are gone in a week and find out what I need for all of it to work properly, and only then will I open up a free trial. If it is only a 7 daytrial then I don't want to waste any of it.

 

You may very well be correct about the new MarketDelta charts, etc. Frankly, since I don't feel I have enough knowledge yet to properly use market and volume profile for my actual trades, I gladly yield the commentary space on such issues to those traders like you who do.

 

Happy Trading :-)

[ezduzzit 10]

Soul: I agree with Linda's comments about "mechanical systems" but to me that is not the same thing as discretionary trading using indicators (whether they are lagging such as MACD, MAs, etc. or leading such as pivots and Fibonacci, etc.), trendlines, channels and set-ups and instead represents more the automated or blackbox type of systems, in which case the stats prove her comments as spot on.

 

More importantly, my earlier comments regarding the value of indicators was only referring to using them as competitive info to know where the masses would likely jump in and out rather than depending directly upon them for your own entries and exits. I suspect I did not make that as clear as it should have been.

 

Happy Trading :-)

[luke24.5 10]

I am a little surprised to hear that you could not find a pivot tool as the video on Forex at that site clearly shows one in use on their charts.

 

I didn't mean they don't have pivot tools. It's just that in the two days I watched they didn't point out any actual pivots. On the third day, the statistical range bars worked decently. Also the breakpoint charts that you use to watch internals are worthwhile. Still got a couple of days to watch before I make up my mind.

[ezduzzit 10]

Ahh. .ok now I get you. But their pivot tool should start out automatically with the floor pivots or whatever generated by OHLC of the prior day. Were you instead looking for variable pivots that readjust throughout the day based upon a time parameter you select? Good to hear some of the other stuff is working out ok there.

[luke24.5 10]

They've got all the standard pivots, and mid points and probablility bands, etc. But they really are just math based probablilities instead of actually pinpointing where supply or demand rests that should slow the market.

 

I don't like a lot of clutter on my charts.

[Soultrader 12]

I enjoy trading discretionary but with a systematic approach. I have developed setups with rules but I still decide whether to take the setups depending on market internals and tape.

 

I am not fully familiar with how system traders take their trades... do they take every signal regardless of market conditions?