Pivot Ranges: Useful Tool or Snake Oil?

... soooooooooooo, in the final analysis, if you are good at Table Tennis or the old Arcade game of "Pong", you will do a helluva good job trading the pivots.

best,

jj

P.S. Obviously, I don't use them. They mean different things at different times. While they could be useful as potential price targets (that every trader and his grandma knows), I'd rather not trade of 'em.
 
Quote from bluedemon77:

I set up my charting software to plot daily pivot ranges (ala Mark Fisher) on my intraday charts. So far I'm not really impressed by them because they don't seem to predict the future better than just eyeballing the trend. I mean the prices drop down below the low range for a few bars, implying a downward trend and a few bars later there is a reversal.

Am I missing something brilliant? What about his "secret formula" for massaging the opening range as a predictor? Has anybody had astonishingly good results using that?

There sure are a lot of people peddling plastic Holy Grails in this business!

Chuck
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I have done some extensive research on pivot points and the etf SPY this summer. Here are a few of my findings, based on research going back to early 1999.

1. For daytraders, buying breakouts of R2 and S2 has been marginally profitable, but once you add slippage and commissions, all profit goes away (and more).

2. Buying strength (buying on stop at R2) is much less profitable on a 1, 2, 3, 4, 5, 6, 7, 8, 9, and 10 day basis than buying weakness (buying at S2 with a limit order). In other words, buying strength for the SPY is a losing proposition (measured by the relationship of potential profit to potential loss).

3. Buying at S3 and holding eod has been a winning bet the last seven years (no bullish bias over those years). SPY does not get to the S3 level often, but when it does, it has led to a 29% annual gain (not compounded, note).

4. Many daytraders watch the ES and watch the pivot levels to see what the market does once it gets there. If it looks like support will hold, buy; but if it looks like it won't (market blows right through), then sell. I cannot tell you how well that works, but there is a journal here (S/R journal) devoted to that approach.

Good luck. :-)
 
Hello again:

I think its natural to feel some frustration when you read about a system this simple, and yet you have failed to make it work.

We all have our talents, and our limitations, so I can't criticize, but I do think that much of my own success has to do with the fact that I arrived at MY OWN RULE SET, BY OBSERVATION. This is why I mention it in my post. The book I referenced is only a starting point, not an "be all, end all" solution. I do think that a trader has to put it on the line and say "either I get this to work in x days, weeks, months, or I assume that it isn't for me and look somewhere else"....

Good luck,
Steve
 
Quote from steve46:

Ah excuse me folks.


First for the original poster. Pivots do not "predict" anything. GannGalt is correct or partially correct might be the best way to put it.

Pivots are just horizontal lines on a chart. A pair of pliers is just a tool in someone's toolkit. In both instances what matters is YOUR skills, your discipline and your judgement.

While I am not interested in having a long discussion I can point you in the right direction.

The best way to learn how to use pivots is to do two (2) things. First you should read up on the subject so that you have a decent background. Here is a good book reference that might help;

Technical Trading Tactics by John Person, published by Wiley

Then you need to observe in real time, how price "acts" when in proximity to pivots. In order to observe "correctly" you need a framework or reference point. For me, I use an organizing principle called "tests". Specifically I start with the belief that price is always testing specific price levels. Some of those levels are where long term investors belief that value exists. Some levels are places where short term players see opportunity to jump in and buy or sell for a quick gain. The reason isn't important. What IS important is that you learn to characterize the movements in a way that you can use for your benefit. For instance, when price moves toward a pivot, does it do so on small bars or what we call "wide range bars"? When price "touches" or "tests" a pivot, does it just barge right through? Or does it move through and then retrace? IF price moves through a pivot, does it "take out" that pivot on big volume or light volume? Does it do so at a particular time of day?

IF you are a good observer, you can characterize the behavior of price as it moves toward and away from pivots and eventually make up a set of rules to guide your buy or sell decisions.

As an example, I assume that price has "taken out a pivot" when it closes above (for buying) or below (for selling). I might use that pivot (plus a little cushion) as my stop loss point when I get long or short.

That should be a good starting point for you.

Steve
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Steve, I understand what you are saying about reacting, not predicting. This is a matter of symantics. In fact, any time you buy or sell securities you are predicting that some trend will continue (i.e. you are "reacting" to it) or is about to end, true? I already learned not to try to call the tops or bottoms and I assume that's what you mean.

Thanks for your book recommendation and explanation. I guess what confused me was I was watching prices flip back and forth through these pivot ranges and could not see how they could aid my decision making. In Fisher's book he basically says if the prices stay above the top pivot for 7.5 minutes, that means you're bullish until they go below the lower pivot for 7.5 minutes, in which case you're bearish. Looking at that alone, it was not apparent how that would improve my decision making ability beyond what looking at the chart was already telling me. I only read the first few chapters so far, so maybe it will have a better explanation of the finer points later in the book. I was just "test driving" pivot ranges with my own data and wanted to know if anyone found them valuable.

Chuck
 
Quote from riskette:


attached is Person's powerpoint presentation for one of his CBOT webinars in which he talks about pivots, among other things.
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Thanks for you suggestion and the presentation. I'll check it out.

Chuck
 
Quote from JimmyJam:

... soooooooooooo, in the final analysis, if you are good at Table Tennis or the old Arcade game of "Pong", you will do a helluva good job trading the pivots.

best,

jj

P.S. Obviously, I don't use them. They mean different things at different times. While they could be useful as potential price targets (that every trader and his grandma knows), I'd rather not trade of 'em.
More...

JJ, I guess this is where I was coming from. Unlike the examples you posted, the charts I was looking at didn't even show the pivot lines acting as support and resistance very consistently. Maybe the charts I was looking at were peculiar or maybe as Steve pointed out I just do not understand the finer points of this analysis.

Chuck
 
Quote from bluedemon77:

JJ, I guess this is where I was coming from. Unlike the examples you posted, the charts I was looking at didn't even show the pivot lines acting as support and resistance very consistently. Maybe the charts I was looking at were peculiar or maybe as Steve pointed out I just do not understand the finer points of this analysis.

Chuck
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Hey Bluedemon77,

Steve has had a lot of good things to say to traders here, pointing them in the right direction.

If you read the Logical Trader and then check out Person's book (he's supposed to be coming out with a second one which gives a lot detailed strategies) I'm sure you can do well.

But it isn't an easy I=yes and O=no kind of trading. It's going to take a lot of effort ... I guess I'm just looking for a little easer approach to the markets, which may or maynot be doable.

Later,

Jimmy
 
Quote from bluedemon77:

Steve, I understand what you are saying about reacting, not predicting. This is a matter of symantics. In fact, any time you buy or sell securities you are predicting that some trend will continue (i.e. you are "reacting" to it) or is about to end, true? I already learned not to try to call the tops or bottoms and I assume that's what you mean.

Thanks for your book recommendation and explanation. I guess what confused me was I was watching prices flip back and forth through these pivot ranges and could not see how they could aid my decision making. In Fisher's book he basically says if the prices stay above the top pivot for 7.5 minutes, that means you're bullish until they go below the lower pivot for 7.5 minutes, in which case you're bearish. Looking at that alone, it was not apparent how that would improve my decision making ability beyond what looking at the chart was already telling me. I only read the first few chapters so far, so maybe it will have a better explanation of the finer points later in the book. I was just "test driving" pivot ranges with my own data and wanted to know if anyone found them valuable.

Chuck
More...


I find that waiting for price to "stay" above a pivot is problematic.

My own solution to this is to make up my own rule for the markets I trade. On an intraday basis (excluding summer), I wait for price to CLOSE above or below my line in the sand (pivot, support/resistance, previous congestion area, whatever). Then I call that my new trading range and try to find entry. Again I use my own rule set depending on what I have observed through time. I may for instance enter on the next bar/candle open OR I may wait for the next bar/candle to exceed the high or low of the previous bar. Whatever rule set you develop, it has to make sense to you and it has to test profitable. Also you will need to decide on a stop loss system. If you understand the idea of "tests" what comes to the fore is that you are developing a way of looking at how other market participants are thinking..IF you get that, then you can start to move to phase II, which is to think a couple steps ahead of the next guy.

FOR instance, we have all had the experience of entering after price moves through an area of congestion, only to have it retrace, washing us out for a loss, and THEN resuming its course, only we are now on the sidelines watching. How do you solve this problem? Do you scale in? entering a small position at first, and if it works out you add, do you wait for that retracement and risk being left on the sidelines if price continues without you? Do you increase your stop size? Much of what we do as traders is about problem solving and about anticipating what the other traders are doing. For index traders, we should be aware that programs are setup to "strand us". Just take an intraday chart (ex summer) and check out the wide range bars, then scan left and see where the previous folks have got stranded... This is how smart money, banks, funds, etc create support. Just a couple of ideas to think about.

Steve
 
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