Indicators: Pivotal Points

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Pivotal Points:

Pivotal points as described in the March 2009 SFO magazine article "Trading FX Like Jesse Livermore Traded Stocks" by Jamie Saettele.

Livermore's strategy was based on what he termed "pivotal points". Most traders today are aware of pivot points, and many traders use some form of pivot points (of which there are too many to count) in order to identify support and resistance, which aids in entering and exiting trades. Livermore was the first trader to refer to a pivot concept. If he was not the first, then he certainly was one of the first.

Livermore defined pivotal points as days that contained heavy volume. After a prolonged move, significantly increased volume was a key signal to him that the market was at the end of its major move. Rather than exit his position instantly, he would wait for the market to roll over and confirm that what he saw was what he referred to as a reversal pivotal point. At the end of a trend, a reversal pivotal point may be referred to today as a blow off top or a panic bottom.

However, not all pivotal points lead to reversals. Heavy volume is often present not just at the end of a major move but also toward the middle of a trend. Take a look at a stock chart to see for yourself. If, for example, heavy volume occurs and the market in question does not roll over right away (or bounce right away), then a continuation pivot point may have occurred. When a continuation pivot point occurred, Livermore added to or even initiated his position.

Since the calculation depends on ATR (Average True Range) the parameters are simple:

  • Look back period for maximal ATR value over nnn bars.
  • ATR (Average True range) period for the used ATR.

Author: Mladen Rakic

Anderson Almeida
Anderson Almeida  

Great indicator, thanks for sharing!

I noticed that atr period seems to not affect results (I tested from 1 to 200, only lookbackbars. Would you please check it out?

Also, just out of curiosity, is there any reason for not using the iATR instead of coding?

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