Pivot Ranges: Useful Tool or Snake Oil?

Quote from steve46:

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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Steve, that raises an interesting point. When you're looking at an intraday chart, isn't the closing price (on say a 5 Min bar) pretty arbitrary or does it have special significance because all of the other traders are paying attention to it?

The intriguing question is at what point do you decide "this was a bad trade" and bail or reverse your position? I HATE getting whipsawed! Just about every system I've tested says if you get stopped out you will make less money in the long run than just following the buy and sell signals. For myself, I think it's going to come down to an "emotional stop" where the loss is all I'm willing to tolerate.

For me, the scariest thing about trading is the last thing you mentioned--all of the sophisticated systems designed to take money away from guys like me. Based on the popularly quoted statistics about becoming a successful trader, I'd say I would have better odds taking my money to Vegas and putting it all on the craps table. :D

Chuck
 
Someone said you don't predict, you react.

OK, i like that, BUT, there is more to it. You must know what you are reacting to or else you are reverting back to predicting, correct?

BEFORE you know where you want in, you visualize where price is headed, no guessing, no predicting. You take a trade based upon where price is most likely headed, (most likely is not a prediction, it is an intuitive battle tested imprint on your brain).

Once you get YOUR signal, and you have visualized your goal for that trade (headed to next pivot level, stays on trend relative to moving average etc) one of two things will happen. DUH!!!

Trading is black and white, no grey areas, either the trade is good or it is bad. No TRIcolored allowed.

PS, Bitstream...........Wow, you have my trading way up there, thanks. I never talked about any number near 40 ES handles a day. The best i ever said that is a realistic goal for a trader of proven skills in ES is to average over a years trading of approx 240 days is 5 handles a day (average, not 5 a day, some might be 10 or more some might be closes to a wash on bad ass range days where it is best to have safety switch on) You say i blabbered about 40. Thanks, Bit, i need a lift.
:) :D

mav, Keep reading those technical trading books, it might gel for you some day. Good Luck

PSS.........STEVE46 TESTS, tests, retraces , retraces, if a retrace holds at no more than 50% the odds favor a continuation. Between the two of us i think we just gave out the "ESSENSE of TRADING". We try to help, it is up to others be believe what others are trying to say as words of help. Some will never get it right if they keep looking in a negative light. Good post about price behavior at levels etc. That is the whole ball of wax in a nutshell.
 
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 use MT4 who has an automatic pivot calculator. Another great pivot educator is Peter Baine try him out at www.forexmentor.com U will benefit greatly.
 
Quote from bluedemon77:

Steve, that raises an interesting point. When you're looking at an intraday chart, isn't the closing price (on say a 5 Min bar) pretty arbitrary or does it have special significance because all of the other traders are paying attention to it?

The intriguing question is at what point do you decide "this was a bad trade" and bail or reverse your position? I HATE getting whipsawed! Just about every system I've tested says if you get stopped out you will make less money in the long run than just following the buy and sell signals. For myself, I think it's going to come down to an "emotional stop" where the loss is all I'm willing to tolerate.

For me, the scariest thing about trading is the last thing you mentioned--all of the sophisticated systems designed to take money away from guys like me. Based on the popularly quoted statistics about becoming a successful trader, I'd say I would have better odds taking my money to Vegas and putting it all on the craps table. :D

Chuck
More...

Hello:

I noticed you asked a question and apparently I forgot to reply sorry....

Here it is.. As far as I am concerned there are two (2) things that matter. First "the close", second the range. The close tells you what the final "verdict" is for that day. The range tells you if there is a lot of controversey about it..

Then you ask, when do you know that your in a loser.. Depends
One way to know is to establish by testing what your stop loss is.

Another way to decide is to use MA's. For example, take any intraday chart (any market) put in two (2) EMA's. (exponential moving averages) say a 5 period EMA, and a 21 period EMA. Now check out the way the market moves are represented by the slope and the periodic crosses of the EMA's. If you were to take a long position when the 5 is above the 21, then you might use the 21 period as your "line in the sand". Once it crossed, and CLOSED below that line, you are out. Try this with the Mini Dow for instance and you will see what I mean.

Yet another way is to place your stop at the days high or low, at the previous day's high or low, above or below a consolidation. If for instance you think you have found a swing point, you could just place your stop above or below it.

Now for your last statement. The most common problem for retail traders is that they wussy out instead of holding through the pain. If you trade indexes for instance, you need to be prepared to take 1-2 point losers. Why, because those markets tend to be noisy and you need to give your trade enough time for your edge (if you have one) to kick in. For equities, you need to characterize your market, each stock trades differently.

You see trading is not about what you are "willing to tolerate", frankly the market doesn't give a shit what you will or won't tolerate. When you develop system rules that work, you will find that IT DICTATES WHAT SIZE STOP YOU USE. Either you can afford to trade it, or you cannot, based on your account size.

Okay then I have answered as honestly as possible, and I hope it helps.

Steve
 
Something can only be useful to you if you believe in its worth, that is, if you have faith in that thing as being an impetus for future market movement, and that the players behind the impetus are "reliable", to an extent. For example, I believe chart patterns, s/r levels, pivots etc do have an effect on where price may go in the future, but only because I believe other people trade off such things. The real question that you want to ask yourself is, whether or not you would want to be one of those traders yourself.
 
Quote from steve46:


As far as I am concerned there are two (2) things that matter. First "the close", second the range. The close tells you what the final "verdict" is for that day. The range tells you if there is a lot of controversey about it..

The most common problem for retail traders is that they wussy out instead of holding through the pain. If you trade indexes for instance, you need to be prepared to take 1-2 point losers. Why, because those markets tend to be noisy and you need to give your trade enough time for your edge (if you have one) to kick in. For equities, you need to characterize your market, each stock trades differently.

Steve
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Steve, thanks for the response and it does help. On the subject of the close, I was thinking more of intraday closes, which seem to be pretty arbitrary and less meaningful than the EOD close.

I think I'm on the right track. I'd say I'm guilty of wussing out. I keep second guessing my model, which has already proven to be smarter than me, and bailing out prematurely. I think I have a pretty good system, but I guess I still don't have enough confidence in it to ignore my own anxiety during the market's gyrations.

Chuck
 
Quote from illiquid:

Something can only be useful to you if you believe in its worth, that is, if you have faith in that thing as being an impetus for future market movement, and that the players behind the impetus are "reliable", to an extent. For example, I believe chart patterns, s/r levels, pivots etc do have an effect on where price may go in the future, but only because I believe other people trade off such things. The real question that you want to ask yourself is, whether or not you would want to be one of those traders yourself.
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Ill, that's the $64,000 question, isn't it. I completely agree that all of the indicators, pivot, and other forms of divining are largely useful because so many other traders watch them and they become self-fulfilling prophesies. However, does the "smart money" pay attention to them and what does that imply for the retail trader?

Chuck
 
I have noticed in intraday trading that there are soem days where there are a lot of pivot players ruling the action. I have also noticed days where the fib guys are ruling the action. Some days the trend guys have it. For me pivots and fibs are just lines on a chart. But if you notice that on days where one or the other rule they do leave some very nice support and resistance levels behind that are very tradeable. So instead of having my chart full of pivots and fibs and god knows what. I just clear my charts and look for the support and resistance levels and trade that. I don't worry about what players created them or anything like that I just trade the breakout of a good support or resistance.
 
Quote from bluedemon77:

However, does the "smart money" pay attention to them and what does that imply for the retail trader?

Chuck
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I'd assume the "smart" money, by definition, does not rely on "incidental" indicators like pivots, and may take them into account but will have more reliable sources/methods on anticipating demand and supply. A retail trader makes do with what he can, but should think about whether his methods actually give some insight to the demand/supply picture, or are just coincidental.

That's not to say the coincidental cannot be profitable, but realize it's basically just leftovers.
 
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