I had a play about with pivot points and wanted to see how often they acted as support and resistance. I looked through roughly six months worth of data starting in may 2010 for my samples.
I was interested in finding out how the GMT pivot points operate as support and resistance by themselves.
So I set up a simple system of rules for this rough test. To classify a bounce I am using two hourly candles closing on the side of the bounce. A break through will be counted if there is a break through of two hourly candles. My plan being to see if there were biases for where price would move following an interaction with one of these levels.
The results:
What we can see in this image are the values and percentages for the direction price was moving from towards the pivots (Above Bellow) the percentages of time price hit the pivot and it acted as support or resistance and the percentages for the number of times price broke through.
The percentages are calculated relative to the side price was coming from. So the percentage for support is calculated from the number of time the level acted as support divided by the number of times it acted as support + price broke through.
Looking at the levels just as support and resistance there are roughly equal odds for price to break through a level or to react at it.
It’s also interesting to look at what happens when price does break though a level. If we look at S1 price has broken down 32 times out of 60. Yet in those 32 times only 12 (37%) times does price return to S1. This is seen with R1, S2 and R2 as well. This suggests to me that as price moves beyond these levels it is less probable for them to return to them let alone break back through them. Note the percentage for the times that S1 acted as resistance and R1 acted as support.
Anyway it’s all food for thought, I wanted to give it a go after reading though Homeofgolfs pivot post. Because that revealed some really cool things.
Feel free to post what ever you want, I made the thread as a place for people to discuss and try to understand how and why we use the tools we do from a probability perspective. I’ve never really fully understood the tools I’ve used to trade with beyond being told or reading how to use them. It’s interesting to look at them from this angle.