Pivot point strategy

[Doctor Leo]

Folks,

pivot points were originally developed by floor traders as a brief and easy to calculate means of guessing the sup/res levels for the next session. Please note the word "session" here. FX is a 24h market with no dedicated daily session regardless of how you would divide the day. Since price movoment is a stochastic process sometimes pivot point coinside with intraday extreme price values, but if you look a bit more thoroughly into the process you would discover that even if you calculated any points at random sometimes they would coinside. This also explains the fact that it's impossible to calculate a correct stop distance for such a "strategy", if you use large stops you're swept away more seldom but with substantial losses, if you use tight stops you're out with small losses but numerous. The bottom line is: trading fx using pivot points without a backtest is a waste of time and money in the long run (and unfortunately, "long" here should be replaced with "short"). If you build up a strategy using pivots and backtest it on some 3-5 years of data you'll find that any strategy of this sort is loosing.

 

[lcharm]

Maybe not 3-5 years due to limitations in my intraday back dates but i've looked into it with the £/$ for the last 3 months and as long as you have good control of your entry and exit points with careful monitoring you shouldn't have a problem. I consider an FX session the 24 Hour period, regardless of whether the market not closing for a "session" and the pivots look fine to me. It doesn't eliminate the need to look at other indicators and chart patterns tho.

 

[Doctor Leo]

All last 3 months is one single, huge, swellish downtrend, that's it. As soon as volatility and people's intentions change (and they will change) you will see quite a different picture, maybe even contraditory to what you see now. Testing on 3 months of history and then trading real money equals to suicide. Do search and find enough intraday data, at least 3 years, better - since 2001. Believe me, you'll be very surprized.
BTW, have you ever thought why most fx retail brokers (bucketshops) provide as little as 3 months of intraday data? Just to make a trap for a beginner who would think he bulit a strategy and even backtested it, and then another 4 or 5 months pass - and he's out of money. 3 months is nothing to rely upon!

 

[lcharm]

OK fine don't want to get into an argument. Personally, the only reason I'd disagree with you as trading is not an exact science and true, you can't go by just what history or what people tell you. I have also paper traded actual movements too. I mean i've been researching it's movenets for well over a year now and regardless of this slump, the markets behaviour is not dissimilar to recent dates.
BTW I use spread betting over FX brokers and i don't trade the long term trend, i look at the intraday trends. I don't make decisions on the crap that people tell me, i research it first, But thanks anyway.

 

[thedawg]

Hi again, yes the timing used to calculate pivots is confusing isn't it? I am using IG Index (was using CMC until they messed up their charting), and I have customised an indicator to let me apply daily pivots, and weekly if I want them, and select midpoints and camarillas too if I want. These are all calculated on a 24 hour period, midnight to midnight UK time (because that is what the platform runs on). Now, are they perfect? I don't know, but probably not - for example if I am looking at the FTSE, the calculations will take into account whatever happens during the US and Asian markets, and if they cause a large movement on the FTSE, it will skew the figures. Does this matter? Well that I'm not sure of, but I don't think it does, at least not to a major degree, the FTSE still seems to reflect the pivots. Bear in mind that I use the pivots more as areas to watch for signals, rather than placing a buy or sell order at the specific value, so if they are a few points adrift it doesn't seem to hurt. Maybe a little trial and error is in order - find the high low and close for the various market periods, calculate the pivots manually, then see which set of pivots the instrument seems to respect the most.

As for the time frames I use in my charts, I am going with John Person's recommendation - I watch the daily for the general direction - e.g. if the price is above the Pivot MAs and above the pivot, I will be looking for long signals. Then I will look at 15 and 5 minute charts. The 5 minute is the trigger, and the 15 is the check - e.g. if I am looking for longs, and the 5 minute gives me a doji bottom on the pivot, I will take it if the 15 is signalling long, but ignore it if the 15 is looking like it is about to come down.

Good luck!

It really is confusing. I guess we should use whatever that works for us as there is no right or wrong answer. Unfortunately I couldnt watch teh webinars. My computer couldn't play the sound for some reason. I will try it again, and see if it works.

 

[handlep]

ldawg, that might be due to a codec issue on your player, I've experienced that myself in the past. You could try ensuring you have the latest codec updates for your player, or you could try using Mpcstar, which is a free player and will play almost anything you can find, it's very versatile. Simple to use too. You can get it here:

MPCSTAR - Play All Your Movies!

The webinars are very good, well worth the effort I assure you!

Pete.

 

[thedawg]

ldawg, that might be due to a codec issue on your player, I've experienced that myself in the past. You could try ensuring you have the latest codec updates for your player, or you could try using Mpcstar, which is a free player and will play almost anything you can find, it's very versatile. Simple to use too. You can get it here:

MPCSTAR - Play All Your Movies!

The webinars are very good, well worth the effort I assure you!

Pete.

Ohh yes. I will download that. I have had this media player sound problem for quite some time ..

 

[oiltanker]

i use pivots but not on fx. fx 'pivots' [or areas of s/r] tend to be near round numbers?

how did you customise the indicator on ig index? It does daily pivots but it would be great to automatically overlay weekly.

yes like any trading system a confluence of things gives better probabilities. 3 confirmations is said to be 75% successful.

right stops are important and one can use sar to trail them.

matt at price trend is great at pivots. his vids may come back sometime he says. anyway here is just one pivot trade search for

YouTube - E-Mini S&P Futures 2/19/2008 Price-Trend.com

 

[handlep]

Hi oiltanker - I have to pop out for a while to pick up my sone from school - I'll paste the code for the indicator on here a little later. And I'll look at that video, thanks

 

[handlep]

OK, this is for Daily & Weekly Pivots, Midpoints and Camarillas, all selectable as required (note, at the end of this code there is information about parameters that need to be programmed too):

IF DAYOFWEEK < DAYOFWEEK[1] THEN
weekhigh = prevweekhigh
weeklow = prevweeklow
weekclose = prevweekclose
prevweekhigh = HIGH
prevweeklow = LOW
ENDIF

prevweekhigh = MAX(prevweekhigh, HIGH)
prevweeklow = MIN(prevweeklow, LOW)
prevweekclose = CLOSE

if (wpiv) then
wp = (weekhigh + weeklow + weekclose)/3
wR2 = wP + (weekhigh - weeklow)
wR1 = (2 * wP) - weeklow
wS1 = (2 * wP) - weekhigh
wS2 = wP - (weekhigh - weeklow)
endif

if (w34) then
wR4 = 3 * (wP - weeklow) + weekhigh
wR3 = 2 * (wP - weeklow) + weekhigh
wS3 = weeklow - (2 * (weekhigh - wP))
wS4 = weeklow - (3 * (weekhigh - wP))
endif

if (wmids) then
wM1 = (wS1+wS2)/2
wM2 = (wS1+wP)/2
wM3 = (wP+wR1)/2
wM4 = (wR1 + wR2)/2
endif

REM now the Camarilla

if (wcam) then
wH4 =((weekhigh-weeklow) * (1.1/2)) + weekclose
wH3 =(( weekhigh-weeklow) * (1.1/4)) + weekclose
wL3 = weekclose - (weekhigh-weeklow) * (1.1/4)
wL4 = weekclose - (weekhigh-weeklow) * (1.1/2)
endif



if (wedata) then
if DayOfWeek =1 then
nn = 1
else
nn = 0
endif
endif
REM first the Pivot, and support and resistance

if (dpiv) then
pivot = (dHigh(1+nn) +dLow(1+nn) + dClose(1+nn))/3
R1 = (2*pivot)-dLow(1+nn)
S1 = (2*pivot)-dHigh(1+nn)
Rtwo = (pivot-S1)+R1
S2 = (pivot-R1)+S1
endif

if (dmids) then
M1 = (S1+S2)/2
M3 = (pivot+R1)/2
M2 = (S1+pivot)/2
M4 = (R1 + Rtwo)/2
endif



REM now the Camarilla

if (dcam) then
H4 =((dHigh(1+nn)-dLow(1+nn)) * (1.1/2)) + dClose(1+nn)
H3 =(( dHigh(1+nn)-dLow(1+nn)) * (1.1/4)) + dClose(1+nn)
L3 = dClose(1+nn) - ((dHigh(1+nn)-dLow(1+nn)) * (1.1/4))
L4 = dClose(1+nn) - ((dHigh(1+nn)-dLow(1+nn)) * (1.1/2))
endif

REM now output the results

return pivot Coloured(255,0,255) as "pivot", R1 Coloured(255,0,0) as "R1", M3 as "M3", S1 Coloured(0,255,0) as "S1", M2 as "M2", Rtwo Coloured(255,0,0) as "R2", M4 as "M4", S2 Coloured(0,255,0) as "S2", M1 as "M1", H4 as "CAM H4", H3 as "CAM H3", L3 as "CAM L3", L4 as "CAM L4", wR4 Coloured(255,0,0) as "w R4", wR3 Coloured(255,0,0) as "w R3", wR2 Coloured(255,0,0) as "w R2", wR1 Coloured(255,0,0) as "w R1", wP as "w P", wS1 Coloured(0,0,255) as "w S1", wS2 Coloured(0,0,255) as "w S2", wS3 Coloured(0,0,255) as "w S3", wS4 Coloured(0,0,255) as "w S4", wM1 as "wM1", wM2 as "wM2", wM3 as "wM3", wM4 as "wM4", wH4 Coloured(0,255,0) as "wH4", wH3 Coloured(0,255,0) as "wH3", wL3 Coloured(0,255,0) as "wL3", wL4 Coloured(0,255,0) as "wL4"

Parameters (all parameters are Boolean):

wpiv (Weekly Pivots)
w34 (Weekly S&R 3 and 4)
wmids (Weekly Midpoints)
wcam (Weekly Camarillas)
wedata (Weekend Data Exists?)
dpiv (Daily Pivots)
dmids (Daily Midpoints)
dcam (Daily Camarillas)
The Weekend Data parameter is necessary sometimes if the charting shows a small candle for Sunday - ticking this option ignores that data.

This is the code for Monthly Pivots, to be applied to a Daily, or Weekly, chart:


IF period <> period[1] THEN

myhigh = prevmyhigh
mylow = prevmylow
myclose = prevmyclose

prevmyhigh = HIGH
prevmylow = LOW

ENDIF

prevmyhigh = MAX(prevmyhigh, HIGH)
prevmylow = MIN(prevmylow, LOW)
prevmyclose = CLOSE

// Pw = (Hveillew + Bveillew + Cveillew) / 3
pw = (myhigh + mylow + myclose)/3

// R1w = 2 * P - Bveillew
myResistance=2*pw-mylow
// S1w = 2 * P - Hveillew
mySupport=2*pw-myhigh
// R2w = P + (Hveillew - Bveillew)
myResistance2=pw+(myhigh - mylow)
// S2w = P - (Hveillew - Bveillew)
mySupport2=pw-(myhigh - mylow)

RETURN pw coloured(0,0,255) AS "Pivot" , myResistance coloured(0,255,0) AS "R1" , mySupport coloured(0,255,0) AS "S1" , myResistance2 coloured(255,0,0) AS "R2" , mySupport2 coloured(255,0,0) AS "S2"

Anyone not sure how to code this in, shout and I'll post a guide.

Good luck trading, Pete.

 

[oiltanker]

thanks handlep

will give it go later

it looks like one cut an' paste into the indicator programme box?
but a guide might be handy?

 

[handlep]

Hi oiltanker, yes the Blue text should be pasted into the code window. The first indicator also needs parameters, and those are in red text - each line is a separate parameter, so in the case of:

wpiv (Weekly Pivots)

wpiv is the name used in the program, Weekly Pivots is the label used in the interface, and they all need to be set as Boolean type.

Let me know how you get on. Pete.