The purpose of this post is to update readers on how my pivot point usage has evolved since the earlier post and to answer some reader questions.
Firstly, I no longer calculate pivot points manually as described in last year's post. I 'm now using Fibonacci retracements and extensions to plot the pivot points on my intraday charts.
How to Calculate Fibonacci Pivot Points
A reader asks how to calculate intraday pivot point values. The data required to calculate Fibonacci retracements and extensions for gap ups are the previous day low (PDL), the current opening range high (ORH); for gaps down, we use the previous day high (PDH) and the current day's ORL. I use mainly 15 minute timeframes, so for me the ORH is the high of the first 15 minute bar or candlestick.
Here is an example of a gap down using the chart below of TSL:
The PDH = $48.60 and the ORL =$44.03In order to calculate the 38.2% Fibonacci extension target, we take the difference of the PDH minus the ORL and multiply the outcome by 38.2% as follows:
$48,60-$44.03=$4.57 *.382 = $1.75
We then take the ORL minus $1.75 to get the value for our 38.2% Fibonacci extension = $42.28.
Finding Key Pivot Points on Longer Timeframes
Another reader asks how to calculate the daily/weekly/monthly pivot high.
Basically, I don't calculate these values, but rather I find them visually from the various timeframes. Here is an example using the weekly timeframe for AMGN as depicted in the chart below.
The blue line is pivot point support at $52.00. Over the last few years, every time price approaches $52.00, it pivots and bounces. PP resistance is $65.00. A pivot point can serve as resistance on the one hand and support later on. Also, a break of PP resistance can, and often results in a momo move to the upside as we can see in the mid 2005 break of PP resistance at $65.00.
Trading from Short-Term Pivot Points
When a stock gaps up or down on very high volume, I save the chart in a folder and look for momentum to follow in the short-term. I map out short-term PPs and set alerts in order to be able to profit from intraday breakouts of narrow base and break patterns. Here is an example that I traded on Friday.
NTAP gapped down on on high volume after earnings disappointed. I plotted my short-term PPs from the daily timeframe (blue lines) and set alerts in Esignal. Friday, the upper PP was tagged on the open, before reversing and testing Thursday's afternoon low. Price tried, but failed to bounce and a low risk short entry was taken. Once the lower PP was taken out, price fell steadily towards its recent lows.
Daily Timeframe EOD Thursday
15 Minute Timeframe Friday
Ideally, I like to have a few potential candidates like this each day. Too many alerts can be counterproductive as many stocks will test PPs on the open and all of the alerts will go off at the same time. So we try to be selective.
15 comments:
Jamie,
Thanks for your efforts on a blog I continue to learn from. I enjoy trading OR breakouts both short and long. When I'm viewing live chart data, and a setup is developing, I never have been able to enter a trade as a price tags the 5ema in a breakout situation. When I look at end of day charts, it's clear where a candle (5,10, or 15 minutes) tags the 5 ema, but only in retrospect. I'm wondering if you've encountered this as well. As a signal to pull the trigger, it would be great to be able to view the interaction/collision concretely. I hope I don't sound too confusing. I would really appreciate your comments. Does your platform allow you to see the price and 5ema converge physically in one quick go or do you see something close to that ? Thanks alot, Octavio
What a great post Jamie. Do you set your alerts for the actual pivot point number, or something close to it?
Thanks,
ADD Trader
Jamie,
Amazing post, you are the Lebron James of trading. Just to clarify all this info, I have a couple of questions. After a stock gaps up/down with volume, how long do you keep that daily chart saved? For the NTAP trade, how did you get the upper and lower weekly PPs(was it the reaction low from the first day to the reaction high of the second day)? Would it have been appropriate to enter the friday NTAP trade on the break of the 2nd 15min. candle considering it just failed to break the upper PP and having the 5ema as nearby resistance? And lastly, if a stock doesn't not gap, do you still use the fib PP as oppossed to the avg. of the H/L/C with the R1,S1 etc.? As always your doing a great service to the trading community, keep up the great work.
question: It sounds like you're using the fib. extentions as pivot points. Is this correct? Quotetracker has a daily pivot point indicator which is different from the fib. levels but still effective from a support/resistance point of view. I'm not entirely sure how those values are calculated.
nevermind... just read the first article. I'm not think as you dumb I am. :)
Good Stuff. I think the pivot points are a great way to trade as they define the S&R in a much better way. I've seen a number of indicators try to identify S&R but it's a hit or miss. (Fibonacci's included). I have recently stopped trying to understand fib targets as well, even though it may be better than all those lagging indicators. I'm now simply trading on probabilities based on historical trades/edge. I know that over 50% of my trades get to 10 cents and 25% to 25 cents. I try to capture these levels with 200 of the total 300 shares and I let the other 100 ride out. Till I see the WRB or High volume bar. It's the only way I can think of trading my edge consistently, potentially improving on it and trying to be consistent winner.
Good post it gives me some ideas on what to look for.
Hi Octavio,
Not sure I fully understand your comment. Basically, on a gap up base and break of the ORH, I like to see that the rising 5 period EMA is very close to price at the time of entry. Of course there are several factors at play that will help determine the potential for success. I also like to see a NR7 or NRB just prior to the break as this often leads to price expansion. However, it may not be possible to always have price and EMA convergence prior to entry. But it is important to have the EMA very close to price for support.
Sometimes I do see the convergence on my chart as it happens, but not always.
Thanks ADD,
Very close to it ie. usually 5 cents before the actual PP.
Alex,
1. I keep the chart active as long as it keeps on giving. For example AMZN has been in play since the earnings gap on April 25th and has two very clear PPs on the daily, the lower of which was tested and held this morning.
2. YES re: NTAP PP
3. I don't like to take a trade in between PPs, If I had taken the trade off of the 2nd bar low, I would have been stopped out. The MAs (5 an 20 were crossing over at that point and I prefer to wait for the MAs to converge over price for a short after the intial crossover.
4. If a stock does not gap wide, I do not always use Fibonacci to determine my target.
OONR7,
I wish I had both types of Pivot Points in my Esignal platform, but I only have Fibonacci. I used to calculate the R/S system in Excel, and manually map out the lines in Esignal, but it just got too cumbersome. Is Quote Tracker a free software by any chance?
Flatwallet,
Thanks for your comment. Mapping out the daily/weekly PP and setting alerts does provide me my biggest reward outside of the gapper extensions. It also reduces the amount of work during the trading session because I have a head start on my watch list.
Hey Jamie,
Great post on your blog! It has really helped my trading. I use Esignal and there are several efs formulas that deal with pivot points which calculate them for you.
Thanks El Toro,
I will look into the efs formulas.
Jamie... QT offers a free version but it has ads and only offers 2 days worth of intraday charts. The paid version ($60/year I believe) has no ads and 10 days worth of intraday data. They also have historical data as well. The pivot points in QT is only available for intraday charts and they do not have a daily or weekly pivot point indicator (wish they did). Maybe you can try the free version just to check it out.
OONR7,
Thanks for the info on QT. I will look into the free version.
After reading the comments here last night, El Toro mentioned that Esignal did have access to PPs in the user coding, so I found daily and weekly PP in my platform after 4 years (Duh!).
Still, I prefer my visual PPs as they are much more accurate than the system generated ones. But the system ones can be helpful, when I'm overloaded or in a rush.
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