Short-term Trading with Pivots

Beginner Questions
1

Welcome traders!

‘Pivot Points’ or ‘Pivot Lines’ are well-known to most traders. Despite there are some trading strategies based on the Pivots, I think, most traders will add them out of their trading-toolbox to put them to other instruments for trading-decisions.

First some basics, there are sources helping to understand, how Pivots are calculated and used:

babypips.com Pivot Points: The Free Forex Encyclopedia
wikipedia.org Pivot point - Wikipedia, the free encyclopedia
investopedia.com Using Pivot Points In Forex Trading

You’ll find a lot more, just google it.

In Youtube and other video-platforms you’ll find educational material, one of them is explaining very well ‘Pivot Points - An Introduction to Pivot Point Trading’. The creator probably was a commercial trading-service, but the company now is out of business.

Second, my contribution in this thread will be reduced to ‘short-term trading’ and ‘trading currencies – the forex’. Despite I’m aware of the possibility using pivots in stock-, index- and long-term trading, my experience is limited to forex and -as mentioned in title- ‘short-term’.

This should not limit the discussion only focusing on this, but my usage does not include the other possibilities. May be I will learn something more.

Third, how to get pivot-data?
There are a lot of commercial web-sites providing daily and accurate data, for example at ActionForex. Also most trading-platforms have a library with technical analysis tools like Fibonacci, Moving Average and others, including Pivots too. If your platform doesn’t provide this, you may include pivots in your chart, if the platform is able to integrate personal code. Using the MetaTrader, you’ll find probably thousands of programmed indicators by traders or companies to attach them to your chart. Some you have to pay for, but a lot of them you get free.

For pivot indicators you shouldn’t pay anything, because the calculation -meaning programming this- is not complicated and there are many existing ones without any fee. I’ll come back to this later.

Fourth, why using pivots?
Not going deep into the basics of trading this zero-sum-game, you have heard for sure the very intelligent headlines like ‘go with the trend (it’s your friend)’, ‘cut losses’ and so on. It’s very easy to say this, but less easy to implement this in a trading concept. So you may go for a fundamental, technical or a combined strategy to setup your personal trading system.

I don’t know if there is an analysis about the winning/losing probability of pivots, but you’ll find such analysis for ‘Fibonacci’ Trading. And the result of research ref. Fibonacci-accuracy to get an edge was disappointing: there was none!

Nonetheless there are successful Fibonacci-traders. Why? – They are using them as one of more different tools.

The same procedure should be used with pivots. It’s not enough to have a look, see the daily pivot, price going through downwards and say: ‘Hey, now it’s time to sell.’

Interesting question too, why are Fibonacci-levels and pivot-lines so well-known despite there is no statistical edge, at least for pivots. Answer: there is herd-instinct, self-fulfilling prophecy. And this is not limited to the numerous retail traders. If you look at the screens of professionals, traders at banks and funds, you would be surprised to see some simple technical tools, most of them you know very well. So if large volume is -besides of fundamental causes- moved by such tools, a lot of traders do this and this tools becoming points of price-action. That’s all. Simple? – Yes it is. And this corresponds to statements, that the best trading-systems often are very simple.

Back to the pivots …

Below you see a nearly naked EUR/USD chart with timeframe 15 minutes of today with the default pivot-lines. And you see that the price respects the pivots. Always? – No, not always market recognizes pivots and if news moves the price or momentum of a move is strong enough, price will pop or drop through a pivot like a knife through butter. This isn’t the case with pivots only, but with all other chart-lines too.

Despite trading-environment is not ‘usual’ these days, thinking at the expected military actions of US forces against Syria, which already caused large volatility in energy-markets, you see price coming to daily pivot, moving around before going down to support S1, bouncing back up to the pivot-line before dropping down through S1. Momentum wasn’t enough to go to S2 so far.

eurusdm15.jpg700×403 23.5 KB

Next example, CAD/CHF chart of today. Price moved indecisive around the pivot, going up to touch R1, retracing to break this level - but only to return.

cadchfm15.jpg700×403 24.8 KB

Enough so far – welcome to all, who want to contribute here.

Good luck trading
josch

2

I just want to add that it always looks easier than it is. In any example you will pick a chart where it works which makes sense, but by no means is it easy.

3

Rambo35,

I agree with you absolutely, let me repeat some of above ‘[I]… you see that the price respects the pivots. Always? – No, not always …[/I]’. This thread has no intention to ‘sell’ Pivots, but to have a look at their possible usage in short-term trading. Indeed we know, that each price action maybe source and example for ‘proof’ of success or failure.

[I]Good luck trading
josch[/I]

4

A few questions if you don’t mind? Do you find HA Candles an asset on the 15m chart, when looking to the daily pivot? Also, which daily pivot are you using? Classic, Camerilla, Woodie, Fibonacci, Fibonacci Retracement or Floor?

5

R Carter,

I am using classic pivots. Using heikin-ashi simply is part of my chart-setup and showing a complete day, the 15 minute-timeframe fits very nice and often shows the price-action around pivots best.

[I]Good luck trading
josch[/I]

6

Thanks for the reply Josch, I’ll be following along with interest. :slight_smile:

7

Perhaps I misread but when you say, “…there is no statistical edge, at least for pivots” I couldn’t disagree more. Alright, I will agree if you are expecting price to respect pivot points and their respective S and R levels as some kind of magical barrier that prevents price from moving through them or where price should usually reverse which is they way pivots are discussed 99% of the time.

If used in other ways then there is, in fact, a small statistical edge. I have detailed a few statistical advantages of trading with pivots in other threads on this forum as have others (can’t remember which threads at the moment – one was a ‘statistics in trading’ thread started by MeiHua). In essence, if daily pivots are rising then so too will price. It seems rather obvious but that’s the thing. It is too obvious. It stares traders right in the face yet they fail to see it. When today’s pivot is above yesterday’s pivot and yesterday’s pivot is above the previous day’s pivot then you have a mini-trend. The majority of price action on successive days take place above the pivot point.

It serves as an advance moving average (since pivots are calculated at the close for the following day). Truly, they are one of the few leading indicators out there even though the levels are calculated on prior price action.

When price does fall below the pivot point in an uptrend how far below the pivot will price go? You can calculate the probabilities of hitting S1, S2 as well as the probabilities of reversal back above the daily pivot (I love Excel :p).

Here is an old chart which depicts price moving in a moderate uptrend with minor pullbacks and what I would consider one major pullback (a mini-trend in the opposite direction). When you have successive days of higher pivots where is the majority of price action? The answer is a bit obvious. Pivots do not necessarily tell you where the market is going but they can tell you where the market is most likely NOT to go. The edge is not fantastic but it is enough to keep you on the right side of the market a bit more often than not. Throw in some actual trading strategies while using pivots as a point of reference and you should be able to hold your own in the market.

For Mr. Carter: I generally use historic floor trader pivots calculated at the NY close on my charts but you can slap on any of them calculated at any close, really, and achieve similar results.

There is nothing supernatural about them and there is no self-fulfilling prophecy. I never expect price to bounce off of them or for there to be a trend reversal if price passes through them. These are rather too rare and, usually, coincidental occurrences. For me, pivots simply provide a great frame of reference and there are actually a few statistical edges to be had when using them.

pivot.jpg700×312 16.8 KB

8

Agreed, there’s very little difference between the pivot point on each type. But R and S levels vary enormously! I’m impressed how you’ve stripped away the R and S levels on the historical pivot! Usually, that chart would look like an explosion in a paint factory! :smiley: Takes some fiddling if that’s a screenshot of ‘Trading Station’ is it?

9

You have a keen eye. Yes, it is Trading Station. Removing the S/R levels isn’t too difficult. In properties just select “no” for the S/R levels and “yes” for the historical. Voila!

10

John,

there’s nothing wrong with your insights of pivots - only ref. the context with my implementation doesn’t fit. You’re able for sure to recognize pa going up/down looking at the levels of for example daily pivots. And you may possibly prove a statistical edge for trading referring on this.

My suggestions following the headline ‘short-term trading the pivots’. Thinking that my charts showing this, I’ll clarify to the point of ‘[B]intraday trading[/B]’. Look at this like there’s no yesterday, not saying forget something like checking overall trend. But the intention to include the pivots is, getting some signal to execute a trade, have a look if there’s a pivot right in your direction or below (buying) and conversely.

If you implement the pivots with your trading, to get (adding to your other parts of strategy) distances from pivot to pivot - looking for a next possible cover right at such a level, you’ll find it very useful. Following ‘[B]collect as much probabilities in your favor as you can[/B]’.

[I]Good luck trading
josch[/I]

11

So far I have found little in the way of a statistical edge to be gained in trading price reactions that occur at pivots that go beyond being random. That doesn’t mean they don’t exist – it just means that I haven’t found them (yet!). So, I look forward to what you present.

12

I’m with you John, unless its proven otherwise in this thread of course. Pivots in my opinion are good for a sideways market. Particularly daily S/R2 in my experience. Problem is when an instrument is trending strongly (lets say down), PA rarely seems to hit R1 and crashes through S2. Using pivots in this case is a little like catching a falling knife?

13

Crashing thru S2 is telling itself…heading for S3? And S2 now becomes the PIVOT? No absolutes…everything in relative context.:64:

14

Don’t hold your breath waiting for the S3 and R3 levels… happens too rarely on most pairs to be useful IMO.

15

Nothing like a strongly trending market and a stop placed safely just beyond reach at the appropriate R1 or S1 level…:smiley:

16

I agree. Rarely have I seen price test the S3 and R3 levels.

Anyway, I’m so happy I stumbled upon this thread! It’s awesome!

17

R Carter,

I don’t want to prove anything - I would have difficulties to use this term in a market of probabilities overall. May lead to the result, that the market participants with the best financial resources and manpower/tools (banks and others) would be winners all the time. We know, this isn’t the case.

You seem to think about pivots as levels against your trading (‘catching a falling knife’). I’ll try to give some chart examples later. But simply look to post #1:

I’d say, EUR/USD shows falling pa - so if you are selling above/at daily pivot, look for a (first) target at next level = S1 and think about a stop a bit above the daily pivot. pa shows going to next level down, retracing and continuing down, not reaching the next level below though.

I’d say, CAD/CHF starts to move up after leaving the level of daily pivot, which seems to be a magnet over hours. Same procedure as above - so if you are buying above daily pivot, look for a (first) target at next level = R1 and think about a stop a bit below the daily pivot. pa shows going up, not respecting R1 at all, [B]blowing through[/B] and coming back to the R1. Nothing wrong with a cover of your position around the R1.

Again - I don’t want to understand this as a signal to execute. Calling it STEM (copyright by Carolyn Boroden aka fibonacci-queen ;)) Trade = Signal > Trigger > Execute > Management, the pivots are part of management.

[I]Good luck trading
josch[/I]

18

pipballer,

you’re right, seeing pa at R3/S3 levels is unusual. Also you always should remember, that pivots are a calculated product out of historical data, so you may say, they’re belonging to the term ‘lagging’ as indicators. But who cares about lagging, if price is nearing a 200 MA-level?

Look at GBP/JPY of aug. 7th: See, that there pa is moving down from level to level, before a strong move didn’t see any level on its way up to … the daily pivot. Coming back down to S1 and moving around there a bit, before continuing. Selling anywhere in the left part of the chart, and if target at S2 isn’t enough, I’d cover the trade at S3 at least and trail a stop to S2, if pa is below.

gbpjpym15.jpg700×381 26.1 KB

Good luck trading
josch

19

Look forward to following this considering my primary tools for trading consist of key Fibonacci levels, a single EMA and a general volatility measure to stop me trying to “catch that falling knife when it’s dropping to fast”. Would be interesting to see if classic pivots line up with my own trade signals and provide any advantageous benefit.

20

Jezzode,

this will be very interesting for me too. I was studying the ‘Fibs’ long time ago for a lot of months. Therefore my knowledge of Carolyn, I’m sure, you know her skills drawing Fibs too. I came to the conclusion, not being enough satisfied with them. At this time I wasn’t trading currencies yet, but the S&P.

You have a lot of possibilities to get your fib-lines, depending on timeframe and what you decide to be the most appropriate low and high. Regardless of my trading I think, especially for newbies the pivots (and for example levels like previous session high/low) have their advantage in being very fixed levels, you don’t need to think about placing them anywhere on your chart.

And -partly repeating my post to R Carter- I’m not categorizing the pivots as ‘signal’ but levels for trade-management as setting a (trailing) stop or looking for the closest target.

[I]Good luck trading
josch[/I]