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Many professionals know the important of the S3 and R3 pivot. Prices will tend to stay within this range. Why? It just does.
The S3 and R3 pivot are terrific pivot points to fade. I will take them 100% of the time. Of course trading is a game of probabilities but fading these two pivots offer a high probability trading opportunity. Price will remain between these two pivots 80% - 85% of the time
The chart picture tells it all. |
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Interesting. Here's my take. First, it should be noted that you do not use the "traditional" S3 and R3 levels. Nor do I.
I found the "traditional levels to be a bit far away and the levels produced similar to your way to be too close. Therefore, I use M3 (midpoint of the two) for my S3 and R3 levels.
Pivot points are what I call inferred support/resistance. That is, these lines are not generally placed in areas where price was previously supported or resisted. They are based on the mathematical phenomenon of "regression to the mean". That is of course, couple with "self fulfilling prophecy" as so many traders use them. From the perspective, S3 and S4 are key levels; the further one gets from the mean, the likely price is to stall/regress back towards it.
Check out the chart below. The black arrows on the 30 min point to two Up-thrusts (VSA term) that occur at R3. These same points can be seen on the 10 min. They are also up-thrusts on the 10. Because the end-game is reading the chart, not all up-thrusts have a small red arrow above. Here, only the second one on the 10 does. An up-thrust is a money making opportunity for the Professional Money. They drive prices up to encourage new longs and to scare out early shorts. Price then closes on or near the low of the bars, which is the direction price is actually headed-lower.