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Ali Mojtabaei
176
Ali Mojtabaei 2015.05.14 08:32 

Introduction

Technical Analysis is the forecasting of future financial price movements based on an examination of past price movements. Like weather forecasting, technical analysis does not result in absolute predictions about the future. Instead, technical analysis can help investors anticipate what is “likely” to happen to prices over time. Technical analysis uses a wide variety of charts that show price over time.

There are many tools for technical analysis and Pivot points and Bollinger bands are two of them. Pivot points tool is not as famous as Bollinger bands but using of the pivot points tool is growing more and more every day.

The aim of the topic is to develop and share the author's experiences about combination of these tools together in order to minimize the equity drawdown firstly and to grow the capital in a normal rate secondly.

To setup and Take a position in accordance to the market trend and then gathering some gain by closing the position partially and allowing the rest part to grow is the basic plan in this way.  

Definitions

Pivot point is defined as follow:

"A technical analysis indicator used to determine the overall trend of the market over different time frames. The pivot point itself is simply the average of the high, low and closing prices from the previous trading day. On the subsequent day, trading above the pivot point is thought to indicate ongoing bullish sentiment, while trading below the pivot point indicates bearish sentiment."

INVESTOPEDIA EXPLAINS 'Pivot Point' as follow:

"A pivot point analysis is often used in conjunction with calculating support and resistance levels, similar to a trend line analysis. In a pivot point analysis, the first support and resistance levels are calculated by using the width of the trading range between the pivot point and either the high or low prices of the previous day. The second support and resistance levels are calculated using the full width between the high and low prices of the previous day."

How to calculate pivot points:

Classic Formulas

·        Pivot = ( High + Close + Low ) / 3

·        R1 = 2 * Pivot - Low - Normal Trading Range

·        S1 = 2 * Pivot - High - For The Next Period

·        R2 = Pivot + (Resistance1 - Support1) - Extreme Trading Range

·        S2 = Pivot - (Resistance1 - Support1)

·        R3 = High + 2*(Pivot - Low)

·        S3 = Low - 2*(High - Pivot)

·        M5 = (R2+R3)/2;

·        M4 = (R1+R2)/2;

·        M3 = (P+R1)/2;

·        M2 = (P+S1)/2;

·        M1 = (S1+S2)/2;

·        M0 = (S2+S3)/2;

Fibonacci Formulas

·      Pivot = (High + Low + Close)/3
·      S1 = P - {.382 * (High  -  Low)}
·      S2 = P - {.618 * (High  -  Low)}
·      S3= P - {1 * (High  -  Low)}
·      R1 = P + {.382 * (High  -  Low)}
·      R2 = P + {.618 * (High  -  Low)}
·      R3 = P + {1 * (High  -  Low)}

  • GENERAL SPEECH AND RECOMMENDED

Daily pivot points are calculated base on the high, close and low price of the previous day and for weekly pivot points, data of the previous week is used. Weekly pivot points calculated base on Fibonacci formula is more useful.

Actually pivot points are support and resistance horizontal line. So they may be called resistance or support level. However attaching all the weekly and daily level will result in a confusing chart and in practice it may be eventuated to over analyzing. In practice M levels are not such useful.

Generally the historical reaction of the price for each chart is the best assistance to choose the useful levels. Base on my experience, Pivot, R1, R2, S1, S2 levels for daily pivot point and Pivot, R1, R2 , R3, S1, S2 , S3 levels for weekly are the more useful levels.

As you know there is no need to calculate and draw the levels manually because there are many indicators that automatically calculate and draw the levels for us. In addition we can customize the indicators base on our needs and taste. daily and weekly pivot points indicators are available in attachments. 

Francis Dogbe
9422
Francis Dogbe 2015.05.15 11:31  
i am a pivot point trader as well. It makes trading much easier and less stressful.
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