Pivot Points Question

[bornebybees 10]

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!

[khamore1 10]

Start by asking questions first than trade and not vice versa

[bornebybees 10]

Thanks a lot for your response, Mr. 10% I.Q.

 

I'm looking to eliminate the guesswork in order to make quick, accurate decisions. I could sell for a profit no problem. Am interested in knowing how "seasoned experts" would approach the situation w/in the context of pivot trading strategy.

[Blue Rooster 10]

Ok, where to start? I guess by saying I'm also new here although not to trading... do I consider myself "seasoned expert"? Not really. I would say "consistent profitable trader". Khamore1 is right, nobody shouldn't start trading without a basic understanding of what it's doing, with clear goal in mind and a detailed plan of how to do it. Contrary of what most people believe, trading is a dog eat dog business where a 10% feed on the rest 90% of the participants, especially the gullible-naive-easy-to-impress newbies.

 

Having said that, your trading approach is very similar of one of the trades I do every day (only when the window of opportunity it's present) - emphasis on every day as in daytrading not holding open positions overnight. One obvious thing, your trading strategy its seriously lacking some important steps: Why to take a trade? What's the acceptable associated risk? What the target would be? When to exit AND why? What money management approach and so on. I think you're starting to see where I'm going with this ([lease refer to paragraph above). Anything less would be considered as gambling by most traders. The 'hoping and praying" approach don't last very long in this business.

 

There are other things that comes to mind but answering your initial question, I would have exited the long position on Thursday with a profit and then moved on to the next trading opportunity. Another approach could be get the stop to breakeven, plus commissions, targeting new R1 if your trade was already above PP on Friday. At the very least I would moved the initial stop loss above the entry price, protecting the trading capital (first rule of trading) and then trailing the stop if you will.

 

Hope it helps.

[KLTrader 10]

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?

 

Since an emotional response by traders at various pivot levels hinges on the current days pivot points (which are based on the previous days price action), it is advisable to execute orders at or near today's levels only. This assumes of course that you have some reason to believe that today's price action has an underlying impetus for reaching the level you have chosen as your target (R1 in this example). Realize that the existence of a PP does not in itself have any value with regard to price move prediction. Each day thousands of stocks trade without ever reaching any of their respective pivot points. In general it is best to trade stocks that are trending on an intra-day basis. For example, if you had executed a short trade in PM at FTP S2 and covered at or near FTP S3 on Wednesday, you would of experienced a much more predictable and favorable outcome.

 

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?

 

Since you know what is happening with the market and your stock today and cannot predict what will happen tomorrow, you are advised to close all trades by the end of each trading day. There are ample opportunities everyday to earn money on an intra-day basis. Holding positions overnight exposes you to substantial and unnecessary risk.

 

Hope this helped.

[sihasan 10]

This is a common dilemma you have when you are trading just based on pivot points. You also need to consider the earlier support/ resistance around and look at pivots to capture partial profits at various levels.

 

What you seem to focus is on the breakout strategy. I would recommend to take partial profits at support levels and focus on capturing the breakouts for the rest.

[enochbenjamin 10]

A few things...

 

1) If you are trading daily pivot points they are intended to be used for that days trading only. Now some people keep older pivot points for reference but if you wanted to position trade I would suggest using weekly or monthly pivots.

 

Which leads right into

 

2) You should know before entering the trade what type of trader you are. If you went into the trade with the intention of it being a day trade - then get out at the end of the day. If you went into it knowing you want to let it run, fine, but know before you enter and don't change your mind mid way thru the trade.

 

If you keep switching during live trades it indicates you either didn't have a plan or you are not following your plan. You might get away with this in the short term but in the long run you will get smashed! Trust me. I used to always get in a good day trade and immediately start thinking this is the trade of the century!!! It's gonna run forever! Only to wake up the next morning to see all that green looking quite red.

 

Pick your poison and live with it.

 

Wishing You Good Trading!

[bornebybees 10]

I appreciate the responses, and it's interesting to see the various opinions.

 

1) If you are trading daily pivot points they are intended to be used for that days trading only. Now some people keep older pivot points for reference but if you wanted to position trade I would suggest using weekly or monthly pivots.

 

So, if I hang onto a stock overnight, it would be more accurate to recalculate based on a two-day range:

 

PM - THU [73.78] H: 74.52 L: 73.13

PM - FRI [74.52] H: 74.62 L: 73.65

PM - THU+FRI [74.52] H: 74.62 L: 73.13

 

based on Friday only:

R1: 74.88

PP: 74.26

S1: 73.91

 

based on Thurs + Fri:

R1: 75.05

PP: 74.09

S1: 73.56

 

Even more risky, especially going from Friday -> Monday. From looking at moving averages it appears that PM is at or near the top for the short-term. I should just sell and move on. What do you think?

 

2) You should know before entering the trade what type of trader you are. If you went into the trade with the intention of it being a day trade - then get out at the end of the day. If you went into it knowing you want to let it run, fine, but know before you enter and don't change your mind mid way thru the trade.

 

Point taken. But I don't know yet, thus the paper trading. Will learn my way through that before I start using real money.

 

When I start trading with money, necessity will dictate that my trading is inter-day as I will be starting with less than 25K. Realistically, I think I'd like to take 2-3 day positions. with a few (5/mo max) day trades.

 

This is a common dilemma you have when you are trading just based on pivot points. You also need to consider the earlier support/ resistance around and look at pivots to capture partial profits at various levels.

 

What you seem to focus is on the breakout strategy. I would recommend to take partial profits at support levels and focus on capturing the breakouts for the rest.

 

If a price goes through R1 and it looks like it's going to keep on, it seems logical to hang on as long as it remains above R1. The problem with that, of course is the price may take a quick dive below R1, and then you're back to where you were before (or worse). What I have to answer for myself is, what's the value of the additional time and uncertainty when I could simply sell immediately at R1 and be done with it?

 

 

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?

 

Since an emotional response by traders at various pivot levels hinges on the current days pivot points (which are based on the previous days price action), it is advisable to execute orders at or near today's levels only. This assumes of course that you have some reason to believe that today's price action has an underlying impetus for reaching the level you have chosen as your target (R1 in this example). Realize that the existence of a PP does not in itself have any value with regard to price move prediction. Each day thousands of stocks trade without ever reaching any of their respective pivot points. In general it is best to trade stocks that are trending on an intra-day basis. For example, if you had executed a short trade in PM at FTP S2 and covered at or near FTP S3 on Wednesday, you would of experienced a much more predictable and favorable outcome.

 

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?

 

Since you know what is happening with the market and your stock today and cannot predict what will happen tomorrow, you are advised to close all trades by the end of each trading day. There are ample opportunities everyday to earn money on an intra-day basis. Holding positions overnight exposes you to substantial and unnecessary risk.

 

Hope this helped.

 

Thank you for this. I appreciate the way you put it - totally logical to use pivots, but choose which stocks based on intra-day analysis. I will try to keep it in mind moving forward.

 

 

One obvious thing, your trading strategy its seriously lacking some important steps: Why to take a trade? What's the acceptable associated risk? What the target would be? When to exit AND why?

 

There are other things that comes to mind but answering your initial question, I would have exited the long position on Thursday with a profit and then moved on to the next trading opportunity. Another approach could be get the stop to breakeven, plus commissions, targeting new R1 if your trade was already above PP on Friday. At the very least I would moved the initial stop loss above the entry price, protecting the trading capital (first rule of trading) and then trailing the stop if you will.

 

I tend to agree: the price fluctuation and energy spent watching it like a hawk, AFTER it had already satisfied my original plan of Thursday's R1, would have been better spent on another stock. Based on your and KLTrader's comments, I think I should have taken the sell.

 

W/RT a clearly defined set of objectives: I'm just beginning, and with that in mind, am trying to really narrow down my decision process to this one technique for starters.

 

 

The gist of these responses for me:

 

Develop a plan and stick to it. Know thyself, etc. That's why I am paper trading and will continue to do so for a few months before jumping in with real money. I'm writing my own software as I go to help me test my intuitions and make decisions based on what I experience.

 

Even though I do have a plan, based on pivot points, I still catch myself making decisions outside of that plan. These poor decisions come back to haunt me pretty quickly. So that's a good thing; it's possible to learn very quickly from mistakes.

[Blue Rooster 10]

"I'm just beginning, and with that in mind, am trying to really narrow down my decision process to this one technique for starters."

 

That's a good start. Just keep in mind to be successful in this business one must come up with a strategy that fits our personality, one that makes sense to you and proves to makes money in back-testing and sim-trading. We only need a trading strategy work most of the time and good money management to make a nice living out of this business. Remember as in life, nothing in here is guarantee. Stick with what works for you.

[RealDemo 10]

If a price goes through R1 and it looks like it's going to keep on, it seems logical to hang on as long as it remains above R1. The problem with that, of course is the price may take a quick dive below R1, and then you're back to where you were before (or worse). What I have to answer for myself is, what's the value of the additional time and uncertainty when I could simply sell immediately at R1 and be done with it?

 

Exactly, and this is the dilemma of maxing out your winners. How much are you willing to potentially give back? and does your testing/observations give you probabilities that favour doing one over the other?

 

This also might vary between markets.

 

It may be possible with multiple lots to create a strategy that trades intraday but leaves a percentage of the trade on to build a much more long term view trade in trending price. Let this percentage run as far as you can or at least have another target area in mind.

 

You may find this provides no advantages at all, or you may find it's to difficult to implement for other reasons, but all this you'll have to find out, as you say, by yourself.

 

Interesting way your going about this, if you don't mind me asking what made you choose Pivots?

[bornebybees 10]

Exactly, and this is the dilemma of maxing out your winners. It may be possible with multiple lots to create a strategy that trades intraday but leaves a percentage of the trade on to build a much more long term view trade in trending price. Let this percentage run as far as you can or at least have another target area in mind.

 

You may find this provides no advantages at all, or you may find it's to difficult to implement for other reasons, but all this you'll have to find out, as you say, by yourself.

 

Interesting way your going about this, if you don't mind me asking what made you choose Pivots?

 

I chose pivots because it's an easy to understand set of formulas that can be extrapolated over any time frame. I've found that, so long as I actually stick to the plan, it has been profitable, at least in the short term that I've been paper trading. Will definitely give it a few months, but it's nice to have the chance to spend entire days doing this - getting up before the market and making some decisions, and rolling with them through the business day, to really understand what happens, and then analyzing those decisions after the bell. I'm finding it easily consumes my attention span and keeps me wired up, which is a good thing!

[rameshraja 10]

I find in many forums, traders talk about Floor Pivot , Camarilla , Woodies and Fib Pivot.

 

Is there any other method of calculating Pivot other than the above.

 

Kindly enlighten me with new methods of calculating pivots and from thereon support and resistance levels.

 

Thanks

 

C T RAMESH RAJA

[Iris 10]

Its a good start but there are some basic conceptual issues:

You have started with a Trading Strategy and not a Trading Plan which incorporates a Trading Strategy. Pivot Points are really Support_Resistance lines based on a self fulfilling prophesy and will generally give you the direction of the trend and will only work on days for Trading it when there is a sideways market.

There is a huge study by JT Jackson: Detecting High Profit Day Trades in the Futures Markets: Using Zone Pattern Probability Analysis - Amazon.com: Detecting High Profit Day Trades in the Futures Markets: Using Zone Pattern Probability Analysis (9780930233556): J Jackson: Books - the Zones are the spaces between the pivot point, R1, R2, R3, S1, S2, S3 etc. He explains how to get in and how to get out e.g. if you are trading the e-mini, you get out 0.75 of a point before the line. If you wait for the line to be touched, its doubtful that you will get there.

I do not use this guy's strategies, but there is an incredibly succinct and short summary of what the difference is of a Trading Plan and a Trading Strategy here which will answer some of your questions, https://rockwell.infusionsoft.com/app/hostedEmail/32454278/dec9309308acb4e2

with a really good laid out outline of a Trading plan here to use as an outline for developing your own - http://www.rockwelltrading.com/files/Markus-Trading-Plan.pdf

[i think that you might want to also look at the combination use of the Bollinger Bands, the MACD and the RSI - don't register for anything! but in <60min you will have a stable entry Plan for your Pivot Point charts and then you use a Profit based exit plan e.g. Let's say you also use Fibonacci entrances - it goes through the 100% or 0% line and comes back in, then you exit at the 50% line. In pivots, if it went through the S / R line and came back through in the opposite direction, more than a defined number of ticks or pips, then you enter and get out at the 50% line (rule - everything retraces to 50% at some point)].

Staying overnight - not a good idea - if a monarch butterfly lands on the wrong plant in Mexico it upsets the exchange in Mongolia - no professional that I know trades overnight. Get out MOC.

Another thing is that you give the impression that you are trading without stops (I might have misinterpreted the description). I remember a T-Shirt that said "Only Real Men Trade Without Stops". It's for T-Shirts, not real life. I have traded since 1994 - not many of us left. The reason I am here is because of stops. This is me without a stop - http://cdn.traderslaboratory.com/forums/images/FH_Sahm/smilies/custom2/crap.gif

Your techniques is also a variation also of another method called the Camarilla method. Good description of how to get in and out - remember that there is no magic in the formulas - they are all variants of the same thing - theoretical S / R, and the ONLY reason that they may work, is that they are used by many people, so they are self-fulfilling: Camarilla Equation - Free!

Best wishes.

[bobcollett 10]

Its a good start but there are some basic conceptual issues:

You have started with a Trading Strategy and not a Trading Plan which incorporates a Trading Strategy. Pivot Points are really Support_Resistance lines based on a self fulfilling prophesy and will generally give you the direction of the trend and will only work on days for Trading it when there is a sideways market.

There is a huge study by JT Jackson: Detecting High Profit Day Trades in the Futures Markets: Using Zone Pattern Probability Analysis - Amazon.com: Detecting High Profit Day Trades in the Futures Markets: Using Zone Pattern Probability Analysis (9780930233556): J Jackson: Books - the Zones are the spaces between the pivot point, R1, R2, R3, S1, S2, S3 etc. He explains how to get in and how to get out e.g. if you are trading the e-mini, you get out 0.75 of a point before the line. If you wait for the line to be touched, its doubtful that you will get there.

I do not use this guy's strategies, but there is an incredibly succinct and short summary of what the difference is of a Trading Plan and a Trading Strategy here which will answer some of your questions, https://rockwell.infusionsoft.com/app/hostedEmail/32454278/dec9309308acb4e2

with a really good laid out outline of a Trading plan here to use as an outline for developing your own - http://www.rockwelltrading.com/files/Markus-Trading-Plan.pdf

[i think that you might want to also look at the combination use of the Bollinger Bands, the MACD and the RSI - don't register for anything! but in <60min you will have a stable entry Plan for your Pivot Point charts and then you use a Profit based exit plan e.g. Let's say you also use Fibonacci entrances - it goes through the 100% or 0% line and comes back in, then you exit at the 50% line. In pivots, if it went through the S / R line and came back through in the opposite direction, more than a defined number of ticks or pips, then you enter and get out at the 50% line (rule - everything retraces to 50% at some point)].

Staying overnight - not a good idea - if a monarch butterfly lands on the wrong plant in Mexico it upsets the exchange in Mongolia - no professional that I know trades overnight. Get out MOC.

Another thing is that you give the impression that you are trading without stops (I might have misinterpreted the description). I remember a T-Shirt that said "Only Real Men Trade Without Stops". It's for T-Shirts, not real life. I have traded since 1994 - not many of us left. The reason I am here is because of stops. This is me without a stop - http://cdn.traderslaboratory.com/forums/images/FH_Sahm/smilies/custom2/crap.gif

Your techniques is also a variation also of another method called the Camarilla method. Good description of how to get in and out - remember that there is no magic in the formulas - they are all variants of the same thing - theoretical S / R, and the ONLY reason that they may work, is that they are used by many people, so they are self-fulfilling: Camarilla Equation - Free!

Best wishes.

 

Dear Iris

Wowowee!!!!

A new voice

Great post.

Kind regards

bobc

[bornebybees 10]

Thanks a lot Iris. Your post contains just what I was looking for - a collection of relevant concepts and buzzwords which I need to learn inside out. You are correct - I don't have a plan, other than to make a profit - and that's why I'm paper trading. Taking a day here and there and running with one idea from market open to close has been highly educational. I'll check out each of the elements you referenced in greater detail.

 

What do you think of penny stocks? There is one stock, ATVAM, I have been observing, that vacillates regularly between 3 and 4 cents, several times w/in the course of a day. It's been doing this for a month! Seems too good to be true, too easy..?

[BlueHorseshoe 10]

There is a huge study by JT Jackson: Detecting High Profit Day Trades in the Futures Markets: Using Zone Pattern Probability Analysis - Amazon.com: Detecting High Profit Day Trades in the Futures Markets: Using Zone Pattern Probability Analysis (9780930233556): J Jackson: Books

 

Your techniques is also a variation also of another method called the Camarilla method. Good description of how to get in and out - remember that there is no magic in the formulas - they are all variants of the same thing - theoretical S / R, and the ONLY reason that they may work, is that they are used by many people, so they are self-fulfilling: Camarilla Equation - Free!

Best wishes.

 

A very helpful post - thanks for the links!

[RealDemo 10]

I chose pivots because it's an easy to understand set of formulas that can be extrapolated over any time frame. I've found that, so long as I actually stick to the plan, it has been profitable, at least in the short term that I've been paper trading. Will definitely give it a few months, but it's nice to have the chance to spend entire days doing this - getting up before the market and making some decisions, and rolling with them through the business day, to really understand what happens, and then analyzing those decisions after the bell. I'm finding it easily consumes my attention span and keeps me wired up, which is a good thing!

 

Yes it certainly demands attention. It's probably one of the most demanding things I've ever attempted. I hadn't a clue at the beginning as to the enormity of the task involved in trading these markets.

 

The premise is pure sparkling simplicity....... the trading of that premise is often the exemplification of hell.

 

I play chess, and I equate trading to being like playing chess.

 

Certainly at the start we trade like our first games of chess. We've understood, and just about memorised how the different pieces move, but beyond that we have some vague notion about protecting the king or something and the rest is totally stumbling in the dark.

 

An experienced chess player has a totally different perspective of the game, as do experienced professional traders.

 

I believe if we persist and give it our utmost attention we can become experienced, and we can consistently extract money from this game. I am aware however that I may be chasing a mirage.

 

I feel sometimes that I'm just getting the pieces out of the box.....

 

All the best.

[Iris 10]

A very helpful post - thanks for the links!

 

Your're welcome. Please note that I do not post these as recommendations to use or buy the Strategies. It is merely a guide to look at a logical approach.

The Jackson book however is the most thorough analysis of the Zones and what can happen at the different levels with statistical probabilities of what might occur. For example, if the price goes through R3 / S3 the likelihood is that they will keep on going. Another example is that if the price is between the Pivot and R1 / S1 the the statistics for that set of circumstances says that there is an 80% chance of going to S2 / R2 (>60%) - it almost certainly will. In everything with Trading, the caveat is that there is no 100% guarantee.

 

PS - I also have Price Pivots (set at length 8) - they are set to a value above or below that Pivot price depending on the Adaptive Moving Average of the length. These are the Buy / Sell points above or below the Floor Traders Pivots.

[fxtrader12 10]

[...] Holding positions overnight exposes you to substantial and unnecessary risk.

 

How about holding position overnight on trailing stop? Some trends continue overnight...

[Iris 10]

I think that you might read this blog on the misuse of the trailing stop (it is not a regular stop) and know that a regular stop order needs to be in place as well. Also, if the market opens in the next trading session limit up or down, the regular stop loss may not be triggered.

 

Why Use a Trailing Stop in Forex | Alan's Forex Blog

 

Trends do sometimes stay in place overnight. But the markets in Germany, Japan UK etc all start at different times and respond to news that may be unexpected - then the direction changes and the training stop may not get you the profit that you expected.Volume is very light at night. There may not be enough positions in play to close you out on your price.

 

Also, I like to sleep at night. Walking away from a trade that unattended makes me lose sleep and eats away my stomach lining.

 

I am not saying that you MUST not do it - I suggest that the professionals usually do not and there are good reasons for their choices.Also try to find out how often a trend stays in place overnight in the product you are in, and if statistically it will pay you to do so based on the history. For example if you have 3 months of data, go back and see how often the trend would have made you money overnight.

Best wishes. Sincerely.

[fxtrader12 10]

Statistics is definitely a better way of tackling the issue (issue: to stay in the trend overnight or not).

[Blue Rooster 10]

Statistics is definitely a better way of tackling the issue (issue: to stay in the trend overnight or not).

 

Agree, although very topic has been one promoting heated debates among day traders, swing and position traders in the past. In reality its all boils down to each individual personality. There are traders that can't sleep at night (myself included) with open positions in the market while other can't spend the required time "staring at the computer monitor" (as they put it) daytrading the markets. To each its own, I guess.

[fxtrader12 10]

[...] There are traders that can't sleep at night (myself included) with open positions in the market while other can't spend the required time "staring at the computer monitor" (as they put it) daytrading the markets. [...}

 

"mechanical trading" or "set and forget" (probably the same) allows one to sleep at night while scoring pips. To cover market 24 hours needs a coop of at least 3 people on 3 continents, each staring at PC 8 hours (8h x 3 = 24 hours) and waking one another for resetting the trades when market direction change. 3 separate accounts while observing charts with same indicators. [...?..]

[TraderGCW 10]

Since the FX markets are open 24hrs what period should be used to determine the high low and close. For example if you were trading the New York market would you take the close of that market and then ignore what had happened in Asia or London or would you take the previous 24 hrs to select high low and close?

[fxtrader12 10]

Since the FX markets are open 24hrs what period should be used to determine the high low and close. [...]

 

pretty confusing, isn't it. Maybe irrelavant?