exlain pivots

Discussion in 'Technical Analysis' started by killATwill, Apr 13, 2005.

  1. Always very entertaining to read all the opinions people have about pivots. I figure it would be nice to have at least one example on record that is historically correct. Here it is;

    Its true that pivots are an invention of floor traders (hence the name "floor pivots"). These folks wanted a way to forecast the current day's RANGE based on the previous days action. The system they developed started with a "daily pivot". This daily pivot is obtained by adding the previous day's high, low and close and dividing by 3. The "daily pivot" is simply the numeric representation of where the average trader bought or sold yesterday.

    Remember that floor traders could not bring computers or other electronic items onto the floor, so this had to be a system that could be figured and "adjusted" on the fly. After they got the daily pivot, traders would figure the "next high" and the "next low" (we know them as R1 and S1 respectively). The way you got these figures was as follows:

    For the "next high".....2 times the "daily pivot" minus the low
    for the "next low"......2 times the "daily pivot" minus the high

    Then they would calculate the "highest high" (R2)
    and "lowest low" (S2) as follows:

    For the highest high....."daily pivot" point minus the "next low" plus the "next high".

    For the lowest low......."daily pivot" point minus the sum of the "next high" minus the "next low"

    This is how it was done more than a dozen years ago and for god knows how long before that.

    Quite a few traders used it (and still do) looking to be long above the "daily pivot" and short below it. Specifically, if the market was in an up trend and price was above the "daily pivot", the best trade was to be long and vice versa. In a neutral market, traders would sell the "next high" and buy the "lowest low".

    This is the original form for pivots.

    After a while, floor traders started to fool around with the formula and change things to reflect a changing market. Some would add the open to the "daily pivot" calculation and divide by 4. There are many variations on the original daily pivots system. I have used pivots for years with very good success.

    There you go, pivots "exlained".

    Hope that helps
    Good luck,
    Lefty
     
    #11     Jun 11, 2005
  2. guy2

    guy2

    Thanks for that excellent and erudite "exlanation" Lefty.

    Which markets and which pivot formulae have you had success with?

    What is your "bread and butter" pivot trade?

    (If you don't mind sharing further knowledge with us.)
     
    #12     Jun 11, 2005
  3. I trade futures. I have posted quite a few charts, so I would suggest you review those at your convenience. I have no preferred setup. I lean on pivots when putting on a position.

    In addition to standard pivots, I use weekly and monthly pivots and I modify standard pivots to obtain a proprietary system that I use for the ES market. Sorry I am not willing to share that.

    Good luck in the markets

    Lefty
     
    #13     Jun 11, 2005
  4. hey thanks ......epty
     
    #14     Jun 11, 2005
  5. kaihui

    kaihui

    That's quite educational.

    Kai
     
    #15     Jun 11, 2005