Pivot Points Revisted
Stockcharts.com has been adding a whole bunch of new technical indicators in recent months, and one I noticed recently was the addition of pivot points. Pivot points is a subject I had been interested in and did some research into it, but due to time constraints and a seeming lack of accuracy, I more or less abandoned the project (I still calculate and post daily pivot points for those interested). It turns out the "lack of accuracy" was due to a misunderstanding on my part, which stockcharts' excellent "chart school" page on pivot points cleared up.
My biggest mistake in using pivot points was not knowing the proper time frames to use. Pivots points calculated using daily data are used on intraday charts at 15 minute or lower intervals. On a 30 or 60 minute chart, you would use weekly pivot points (calculated with the high, low, and close of the previous week). On a daily chart, you use the monthly pivots, based on the high, low, and close of the previous month. On a weekly chart, the pivots are based on the high, low, and close for the previous year. Once calculated, the pivot points do not change until the time frame you are looking at is over and the points are re calculated.
Stockcharts has 3 types of pivots: standard, fibonacci, and Demark. The standard pivots use the same formula as the "Floor" pivots that I calculate every morning. The fibonacci pivots us fibonacci ratios and do not appear to correspond to any of the pivots I calculate, although they are close to the "Camarilla" pivots. The Demark pivots are the same as the Demark pivots I calculate, with the addition of a "pivot point" in the middle, which the Demark formula does not include.
Here is the one year chart of the SPX with standard pivots. Since this is a daily chart, the pivots are base on the prior month's high, low, and close, and once calculated, do not change for the entire month.
These are the fibonacci pivots. While the standard pivots have two levels of support and resistance above and below the middle pivot point, this has 3. That is the same as the "Camarilla" pivots I calculate in the morning, although the formulas are not the same.
Here are the Demark pivots, which are the same as the ones I calculate in the morning, but without the middle point. Pivot points are not meant to be "predictions", but are considered important points which, if broken, usually lead to some pretty big moves in the direction of the break. They also serve as support and resistance levels (notice the small corrections in November of 2010 and March of this year came down to test the middle pivot , where they found support, while in August of this year, breaks of pivot points lead to big moves down). When used properly, pivot points can provide some pretty good guidance for entry and exit points.
Stockcharts not only provides a slew of technical indicators, it also gives you details about how they are calculated and how to use them, which I absolutely love. I wouldn't trust a "proprietary" trading signal that other websites give, no matter how accurate they have been in the past, unless I can see under the hood and know how they work.
My biggest mistake in using pivot points was not knowing the proper time frames to use. Pivots points calculated using daily data are used on intraday charts at 15 minute or lower intervals. On a 30 or 60 minute chart, you would use weekly pivot points (calculated with the high, low, and close of the previous week). On a daily chart, you use the monthly pivots, based on the high, low, and close of the previous month. On a weekly chart, the pivots are based on the high, low, and close for the previous year. Once calculated, the pivot points do not change until the time frame you are looking at is over and the points are re calculated.
Stockcharts has 3 types of pivots: standard, fibonacci, and Demark. The standard pivots use the same formula as the "Floor" pivots that I calculate every morning. The fibonacci pivots us fibonacci ratios and do not appear to correspond to any of the pivots I calculate, although they are close to the "Camarilla" pivots. The Demark pivots are the same as the Demark pivots I calculate, with the addition of a "pivot point" in the middle, which the Demark formula does not include.
Stockcharts not only provides a slew of technical indicators, it also gives you details about how they are calculated and how to use them, which I absolutely love. I wouldn't trust a "proprietary" trading signal that other websites give, no matter how accurate they have been in the past, unless I can see under the hood and know how they work.
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