First off let me make this clear to anybody that may be following my antics:
This is not by any means a detraction from my proven trading system or methodology. The said system, however, really only requires me to spend around a half hour per day just before the close (by close I mean the closing of the NYSE) in order to monitor and maintain positions and act on signals. As a result: I have an inordinate amount of time on my hands during the day which, at the moment, is largely spent simply staring at charts. Boring as this may be: it has caused me to observe the behavior of price at certain levels during the trading day and with an almost 99% certainty I can tell, even with a totally clean chart in front of me, that those certain levels at which price exhibits a certain behavior is always when price has reached some or the other pivot level. I have personally not been able to turn a profit from this knowledge in spite of seeing this scenario playing out on a daily basis. And this is the reason for this thread. I believe that my time could be far better spent during the trading day profiting from this price behavior even if such profits are smaller than that of my proven trading system or methodology but possibly on a more frequent basis.
Now… My issues with pivots!!! LOL!!!
I have seen so many pivot point trading systems that I’ve probably forgotten some already. I’ve seen so many variations of pivot point calculations and even coded them from time to time. Which is best. Which is profitable. Which is a waste of time. I don’t have the answer. And that’s why we’re here.
One example of a pivot point trading system if I may:
John F. Carter has his version of pivot plays detailed in both of his books. They both seem to start out fairly alright. But as I have delved deeper into these plays: I end up with more unknowns and questions than answers. Drawing the actual pivots is not an issue. He uses the standard floor pivot formula. But then things get complicated. The question is: what to do and how to act when a pivot level is reached. And here is where his play, for example, becomes subjective. He suggests looking at pre-market volume on the S&P E-mini Futures Contracts (sorry FOREX traders). The number of contracts being traded, or lack thereof, will (apparently) dictate as to whether it’s going to be a trending day or a sideways day and how price will, in all probability, react when a pivot level is reached. Assuming you even have this information (which costs money and which I have spent a fair amount of $$$ on in the past I might add) I feel this is subjective. For one thing: the number of contracts being traded at the time of his writing those books I do not believe is applicable in 2019. The figure of 25 000 contracts (above or below) comes to mind here. But that was years ago. So while that may have worked for him back then: that figure may now be 50 000. Who knows. In addition: his stops are placed at or around certain fixed intervals (it will differ depending on the price of the instrument). Let’s say that, back then, 20 points on the Dow was his level. 20 Points on the Dow nowadays is nothing. Volatility in the markets is different. It’s ever changing anyway. I guess my point is: surely there must be a better way to mathematically (and dare I say dynamically) ascertain your stop levels. And this is just ONE pivot play that I have studied. There are dozens. I use this purely as an example.
Now back to the current day and my observations:
Price ALWAYS stops and pauses at some or the other pivot level. On my trading platform I (unfortunately) only have standard floor pivots with the levels S3, S2, S1, P, R1, R2, R3. I don’t have the mid points. And cannot add them either. Not the end of the world as these things can be manually calculated after the close and before the beginning of the next trading day (and I’m prepared to do that if required). In spite of this possible and perceived shortcoming: price mostly hits one of these levels and then hangs around (the exception being one of THOSE days where there’s been some or the other issue and it just barrels through the pivots without even thinking about it but these don’t happen too often). Now the problem: at what point and based on what notion does one decide to go long or short??? And once that’s decided: where do you place your stops??? I’ve seen so many ideas on this but in practice, for me anyway, they don’t appear to stack up. Not consistently anyway. Only thing I’m almost 100% sure of (and most any pivot trader will confirm): if price ever trades to R3 or S3 it’s prudent to fade the move as that is an extreme move. But here again: I’ve also seen talk of R2 or S2 being known as the “dead high” or “dead low” of the day. This I’ve not really seen holding (not lately anyway).
Now let it also be said here that my own personal experience with trading pivots has not been stellar at all. Each and every time I’ve attempted this: I’ve always fallen into the trap of moving my stops when I see that they’re about to be taken out (usually to the next pivot level or whatever). And then move them again. End result: a far greater loss than my original 2% aspiration. That’s been my usual modus operandi when it comes to pivots. I guess what I’m saying is that I don’t take lightly to stops being taken out (and if the truth be told: it’s probably why I do so well with my, let’s call it “main”, trading system i.e. no stops, no frustration, and therefore no encouragement to do stupid things or revenge trade) (in short my main trading system suits who I am). All of this being said: I realize that there’s going to have to be some more IRONCLAD discipline learned here by myself. I’m prepared to try. I really do believe in these things. Price just reacts to them with far too great accuracy and frequency for them to not be valid. We can obviously discuss the history and background of pivots of course but only if it’s relevant (anybody wishing to trade these things should at least know what they are and why they work). Aside from anything else: eve if they’re not magical numbers based on mathematical formulae they certainly are watched by any equities or commodities trader worth their salt (even if they’re not actively trading them) so they become a self fulfilling prophecy to a large degree.
So there you have it folks.
The floor is yours.