There are numerous variations of pivot points. There are classic floor trader pivots, Demark pivots, fibonacci pivots, camarilla pivots… the list goes on. Each of the different pivots is calculated in a slightly different way from the others in an attempt to make them more accurate or more predictive than the others. The biggest variation among pivots, however, will be because of your broker. Since different brokers use different start/end times for their day the open/close times, which affect when the pivots are calculated, will vary greatly.
Now, just to stir up a bit of controversy… none of the above variations matter too much, believe it or not. There are veteran traders who are now screaming “Blasphemy!” at the top of their lungs having just read this statement.
Pivots were designed to have some predictive ability for the markets. If price is trading above the central pivot then the tendency was for price to continue trading higher. The reverse was true for trading below the pivot. The various S and R levels were designed to project just that – likely S and R levels. They do. All of them.
If you go back a few months and draw a few completely random lines on a chart you can scroll back further and see that that at various times those random lines acted as perfect support and resistance. If you scroll forward, you will see again that those random lines had amazing “predictive” powers when it comes to support and resistance. Almost any line drawn anywhere can work. You can even effectively trade these random lines with price action since you are effectively using them as lines in the sand, so to speak. It is not the lines you are trading per se, it is HOW you trade off the lines before you.
Does that mean that pivots have no predictive power? Far from it. The simplicity of the standard pivot point calculation actually IS somewhat predictive. Just to prove this, place the historical, daily standard floor trader pivots on your 1 hour charts. Now zoom way out to encompass a few months of trading data. What do you see? Once price begins trading above the pivots it tends to stay above the pivots, more often than not, for extended periods, often weeks at a time. The pivots almost act as moving averages. The big difference between the two being that moving averages tell you where price currently is in relation to the past. Pivots tell you where price is in relation to the present as well as the immediate and expected future. This is a subtle but important difference.
This exercise works with all of the various styles of pivot points and even works using different broker times which one would expect to throw the calculations completely off. Why does this work? I have no idea. It would take a much smarter person than I to explain it and even then I probably wouldn’t get it. It does, however, work.
An indepth study of pivots is worthwhile for new traders. There is an amazing consistency when trading off of them and their respective S/R lines. Using only pivots, S/R lines and price action one can become a successful trader. Which ones are best? Irrelevant. I personally prefer classic floor trader pivots calculated from a NY close only because that is what I became used to using.
Don’t worry about using off-the-rack pivots, they work just fine. There is absolutely no need to track down the ultimate, most accurate, super-duper pivots with mysterious, proprietary calculations. Those will work no better than plain vanilla pivots.
For my “it doesn’t matter” heretical ways, I am prepared to be burned at the stake after enduring the tortures of purification from my fellow veteran traders who insist that it actually matters. They are all entitled to be wrong.
