In this month’s Indicator Spotlight, we’re looking at the daily Pivot Point indicator. Pivot levels are well known price benchmarks, considered to be among the most reliable for determining intraday support and resistance. To learn more, watch the video or continue reading below:
Daily Pivot Point Calculation
The dailyPivot Point indicator applies a simple range calculation with added weight to the close. You may therefore determine the main pivot (PP) by taking the prior day high, low and close by 3: (H+L+C)/3.
A pivot range may also displayed around the PP, comprised of the Central Pivot (CP) and the Directional Pivot (DP). You may locate the CP by taking the prior day high and low, dividing it by 2: (H+L)/2. Finally, the DP equals the distance between the PP + CP, wrapped in the direction of the prior close. The pivot range coloring (red vs. green) will indicate the prior day bias.
Four (4) major support / resistance levels are located above and below the main pivot. Generally, the most powerful levels are the first and second levels. The distance between the first support (S1) and resistance (R1) level, equals the prior day range. When the market is trading in this area, you may consider it as “range bound”.
The distance from the main pivot to the second resistance (R2) level also equals the prior day trading range. The same goes for the second support (S2) level. Because a significant move is required to break the prior day range, R2 will often be the high of the day. Conversely, the S2 will often mark the low of the day.
Daily Pivot Levels and the Opening Range
One approach for trading daily pivot levels was presented by Mark Fisher, in his book the “Logical Trader”. In it, he describes the ACD system and how thePivot Point indicator can be used together with the Opening Range.
The regular open and the following minutes is the most dynamic and active period of the trading day. It frequently sees major breakouts and reversals and according to Fisher, it is statistically significant. Specifically, this time window marks the high or low for the day about 20 percent of the time, refuting the random walk theory of the markets.
Fisher describes Opening Range time periods of anywhere between 5 and 45 min, depending on the market. The core idea here is simply establishing breakouts above or below that range (additional details in our previous post on the Opening Range Breakout and on a Opening Range Breakout Strategy)
Furthermore, Fisher establishes an offset of ticks above / below Opening Range. These are referred to as the A and C levels and used to improve the statistical probabilities of Opening Range setups.
You may consider long positions after a break of the upper A level, setting a stop loss at the Opening Range low. Conversely, a short entry would trigger at the break of the lower C level. The stop loss for that position would be at the Opening Range high.
The ACD Offset
The offset is determined partly on where the Opening Range and current session close plots are located compared to the Pivot Range. For example, he distinguishes between plus and minus days:
- A plus day is an Opening Range that plots below the Pivot Range and that ends with a close above the Pivot Range.
- A minus day is an Opening Range that plots above the Pivot Range and that ends with a close below the Pivot Range.
In addition he looks at the overall picture of the market by using a rolling pivot range as well as an hourly pivot for short term trading.
Still, big changes have taken place since Fisher first published his book. In todays algo driven and high frequency traded markets, significant moves will occur during the first minute of the open. In addition, pre-session highs and lows are now important support resistance levels. These highs and lows, set during Asian and European sessions and will often be the first test and indicaton of what direction the market will take next.
ETH vs. RTH Pivots
Traditionally, the dailyPivot Point indicator plotted by taking the high and low levels of the regular session. However, with markets now trading around the clock, we can distinguish between ETH, or GLOBEX pivots vs. regular session, or RTH pivots.
If you set thePivot Point indicator to calculate based on ETH price data, levels will be based on the prior day’s full session HLC. It therefore includes the overnight price action. The ETH pivot levels are appropriate for instruments that do not have a local bias, and that never had a tradition for pit trading at a centralized exchange. Examples for this scenario includes FOREX instruments and “universal” commodities such as gold.
Traditional floor pivots however, are based on the prior day’s HLC of the regular session. The regular session refers to the local time when the majority of volume / trading takes place at the exchange. This situation applies to index futures, bonds and certain commodities. The local traders of these markets will use RTHPivot Point indicator levels. Therefore, these levels are created by using the high, low and close of the regular session.
Premium Daily Pivots vs. Library Version
The premiumPivot Point indicator comes with a trading hours database with presets for all major futures contracts. Accordingly, the indicators can be used with the default <instrument settings> templates that come with NinjaTrader 8 for both ETH and RTH pivots.
A side effect of this improvement is that the library pivots cannot be to display RTH pivots on ETH charts. You may only create RTH pivots with the premiumsuite pivot indicators. Specifically, the premium version calculates RTH pivots by using a secondary minute bars series. Therefore, when applied to exotic bar types, such as Renko bars, you may produce accurate RTH pivots.
With the library pivots, you may create daily, weekly, monthly and N-monthly pivot levels from the full session (ETH). You may also choose between different pivot formulas, namely Floor Pivots, Wide Pivots, Jackson Zones and Fib Pivots. The libraryPivot Point indicator also allow you to select the settlement price, instead of the regular close, as a basis for the calculation. This of course assumes that your data provider supplies that information, i.e. the settlement price.
If you keep your machine running overnight, the premium version offers an option of autoloading daily data (settlement price). Conversely, if you connect to the datafeed in the morning, the daily data is loaded directly via the indicator. It is not necessary to load it separately. When using “Daily Bars”, the library version will display correct pivots for extended trading days, following public (US) holidays. The premium pivots will always display correct pivots following a public holidays as these indicators come with a holiday calendar.
Finally, the premium versions also have an option to plot pivot projections for the next day, week or month. This will allow you to anticipate the next session’s levels, prior to the completion of the current period. The projections are based on the current period high, low and the last traded price. You may also add a 3 day Balance Point to display a rolling central pivot. A separate rolling pivot indicators series is available in the premium package. You may use that to create daily, weekly or monthly rolling pivot levels.
The Daily Pivot Points indicator is available for NinjaTrader 8. Visit our NinjaTrader indicators library now to download:
Conclusion:
Additional premium features, such as rolling pivots, projections, autoload of daily data and improved graphical design are certainly "nice to have". However, if you trade markets that have a local bias, the premium pivots are next to mandatory. The majority of volume and trading activity takes place at this time and traders will use the RTH pivot levels. This applies to index futures, bonds and certain commodities.
To have a look at all the different library vs. premium features side by side, you may do so here. Visit our premium section now to learn more.
