Advanced Pivot Point Trading

[Soultrader]

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.

[mong]

nice james. i've done a little work with levels. i always found the charts fill up quickly and become unreadable. so sure clusters (confluence) is the way to go! i've attached a spreadsheet i use to do just that.

it calculates varies levels:
fib 161.9%
fib 123%
fib 61.8%
floor pivots r3
floor pivot r2
floor pivot r1
wkly fib 161.9%
wkly fib 123%
wkly fib 61.8%
wkly floor pivots r3
wkly floor pivot r2
wkly floor pivot r1
60min pivot range low
Lst.wks.low
y'day low
60min.floor pivots r3
60min.floor pivot r2
60min.floor pivot r1

60minLow
wkly pivot range low
dly pivot range low

it then cross checks each level with the others using a tolererance/sensitivity. the current sheet contains data for YM dow futures with sensitivity of 5. so if your level is 12678 it will crosscheck everything between 12673 - 12683. if it finds another level who falls inbetween these two numbers it gets a hit. if you 1 or more hits it includes the levels.

now you just enter those few lines for the trading day and then you've got some high probability spots from which to trade off or hide stops behind.

add more too it or modify it for you own purpuses.

cheers, marius (aka mong)

[mister ed]

Hey Mong - very generous to share such a great tool, great work - thanks very much.

[btrader2]

	Quote:
	add more too it or modify it for you own purpuses.

Great tool mong! Turns out it's a pretty good tutorial as well. I see how I can add previous day MP value areas. At a later date I can add developing VA much like you have your 60 min data set up. Then let your spreadsheet check those for confluence.

P.S. I modified your 1.23% fib to 78.6% which is a level I prefer.

[smwinc]

Nice Mong!

Very flexible spreadsheet.

Cheers

[OAC]

	Quote:	btrader2
	I see how I can add previous day MP value areas. At a later date I can add developing VA much like you have your 60 min data set up. Then let your spreadsheet check those for confluence.

And don't forget to add the POC for the Globex session as well.