Using Pivot Points in FX

There is a new article on Investopedia titled, "Using Pivot Points in FX."  The article shows how to use pivot points in conjunction with the RSI indicator (divergence) and actually introduces some interesting statistics.

Since inception of the EUR/USD, the actual low of the day has been lower than S1 44% of the time.  The actual high of the day has been higher than R1 42% of the time.  For S2/R2, the probability is 17%, and for S3/R3 3% of the time.  Read further for a better understanding.

Using Pivot Points in FX  

Get Daily Pivot Points here

Popularity: 1%

The MACD Is Overrated

I read a pretty enlightening article on the MACD today and how this indicator has been elevated to mystical status.  Is this deserving?  According to the author, no.  The MACD is an indicator based on moving averages; that's it.  "In the end, the performance of moving averages and indicators based on moving averages will always be, well, average." I personally use the MACD and I'll admit that I've been guilty of elevating this indicator to mystical status as well.  I predominantly use it to identify divergence between price, but I also use it to identify momentum.  

I've talked in the past about my avoidance of lagging indicators and the author of this article says that if this is the route that you want to go (I do), then here is what your toolbox should and should not be.

Your toolbox if you want to perform technical analysis in a lagging manner:

1. Moving averages
2. MACD
3. Stochastics
4. Parabolic SARs
5. Bollinger Bands 

Your toolbox if you want to know where price "is likely to go next… as often as 80% of the time."

1. Trendlines
2. Pivot Points
3. Candlestick

This article presents far from revolutionary information but it goes against from the norm and states why you would be best served by using something other than the MACD.   That is why I like this article.  There are just so many articles on how to use the MACD to your advantage.  

The author also mentions some candlestick patterns (hammer, star) that when identifying them when price is near pivot points or trend lines, can be more powerful.

Article: http://www.investopedia.com/articles/trading/06/AgainstMACD.asp

Popularity: 3%

Pivot Point Project

I've been trying to do so many things this week other than trading that I almost forgot that this was my #1 goal.  I've started to write some more scripts to start my pivot point project.  Basically I'm going to crunch lots of data to try to understand their usefulness.  I'm planning on starting small and expanding as I go forward.  For instance, last night I analyzed pivot point data for the GBP/USD over 4 years to theorize whether the opening price being above or below the pivot point has any affect on the price for the rest of the day.  This test just happened to pop into my head first plus I was curious to know the results.  The pseudocode for this procedure is below. Pseudocode is not real code and is more natural looking so most people can understand.  It's much easier to code for real once you have the pseudocode.

Here are some questions that the results theoretically attempt to answer for the GBP/USD over the last 4 years:

1. "If the opening price is greater than the pivot point for a given day, will the price for the remainder of the day remain above the pivot point?"
2. "If the opening price is  less than the pivot point for a given day, will the price for the remainder of the day remain below the pivot point?"
3. "Will I have more wins than losses by opening a long position at the beginning of the trading day if the open is above the pivot point?"
4. "Will I have more wins than losses by opening a short position at the beginning of the trading day if the open is below the pivot point?"

The simple answers to all 4 questions are……………

NO, NO, NO, and NO!

The results were basically 50/50 meaning that 50% of the time if the price opened above the pivot point, the price stayed above the pivot point.

This is very simplistic but a start.  I have to finish importing tick data for other currency pairs which is time consuming.

__________________________________________________________________ 

pivot_point;   # Pivot Point as calculated from the previous daily close
current_bid;   # The current bid price of the GBP/USD
opening_bid; # The opening bid price of the GBP/USD
closing_bid;   # The closing bid price of the GBP/USD
date = 2003-01-01;  # Starting date is January 1st, 2003 
true_counter; # A counter to keep track of true values
false_counter; # A counter to keep track of false values 

price_diff; # Difference between price a close to price at open.  If price is positive, long was profitable 

# Loop through all tic data from 
while (date <= 2006-09-30) { 

# Loop through all tic data for the day in order from open to close
while (open bid <= end bid ) {

    # If the open bid is above the pivot point 
    if (opening_bid > pivot_point) {

        # If long was profitable and price was up             
        If (price_diff > 0) { 

            # Increment the true counter
            true_counter ++;
        }

        # If short was profitable and price was down
        else if (price_diff < 0) {

           # Increment the false counter 
            false_counter ++;  
         }

…Repeat similar logic if the open bid is below the pivot point

Popularity: 1%

The Only Seven Indicators You Will Ever Need

I was reading an article today that talks about the top 7 indicators that can be incorporated into your trading style.  I tend to agree with most of them.  I have gone through that stage of jumping from indicator to indicator with the illusion that the previous indicator I was using was broke.  There is no perfect indicator but I feel that if you stick to those that lag least, you will be getting out of positions when lagging indicator followers are just getting in.  And now for the list….

The Top 7 Indicators

1. Candlesticks - I use these the least, probably because the can vary so much depending on your broker or charting provider.  As you increase your time frame though, the variations are less of a factor and I believe the candlesticks can be more valuable. (Daily charts)
2. Trendlines - I use these often as do a lot of you, I'm sure.  Need I say more.
3. MACD - This is on every one of my charts.  I use it to spot divergences in price.  I'm constantly referencing http://www.forexproject.com/technical_analysis/divergence.html to do so.
4. 200 EMA - I have been through so many moving averages.  I always seem to have at least 3 on my chart though.  If anything, I glance at them to spot the trend.  The article states that this is an all time favorite for traders across the board.  Take note whether price is above or below to give you a sense of price direction.
5. Pivot Points - I use these often but mainly for exiting positions.  I'm still doing a lot of experimentation with data to understand them better.  All of this experimentation will be posted on the http://www.allpivotpoints.com site.
6. Fibonacci - I've used these many times in the past but currently I don't use them at all.  They are very subjective but can be quite powerful especially at the 62% retracement level.
7. PRICE - Probably the most important of indicators but the hardest to master.  It takes lots of experience to do so.  The articles makes a good point by stating that "let price prove to you where it wants to go by setting entry order rather than market orders when entering a trade."

Top 7 Indicators For Developing Your Own Trading Style

Popularity: 2%

One Year Anniversary and Trading Update

Tomorrow is Forex Project's one year anniversary.  I will be posting some of my old content with some present commentary attached in the upcoming weeks.  It's amazing reading those posts from a year ago.  It seems like I've come so far since then.  I hope those of you that have been following feel the same about your trading.

It's been a good week.  I have five wins in five total trades and the H-system has three wins this week.  I'm up a total of 253 pips since Monday.  I feel good about the state of my trading right now but I know that things can change in an instant and five straight wins can easily turn into ten straight losses.  I just have to remain focused, dedicated, persistant, consistent, and probably loads of other things.  

I know I've been mentioning my pivot point site a lot but I've added a blog section that is going to be the central area where pivot point discussion, articles, and future development is going to be posted on the site. 

http://www.allpivotpoints.com/blog/

Popularity: 1%

Trading Pivot Points Part 1

I've been studying reaction of price to pivot points for the EUR/USD and USD/JPY for a couple of weeks now but have yet to come up with a viable way of trading pivot points.  I've been exploring pivot points in an effort to create yet another system that uses price as its main indicator and not a lagging indicator.  There is a lot out there on the web that explain how to trade pivot points but nothing that has really got my attention.  Many of the systems use the pivot point level as the main support or resistance level that is targeted for a possible breakout or fade trade.  

One way of trading pivot points that I've been exploring is by incorporating the divergence of the MACD.  MACD is obviously a lagging indicator but divergence can take some of that lag out when certain patterns are recognized.  Let me show you an example.  It's easier with a video but I'm just brainstorming here so I'm just going to attach a graphic.

The question I'm asking myself is, as the price is approaching the pivot point level marked on the chart, how do I know whether to trade a break or a fade.  Looking at just price, the only indicator is the previous day and the fact that the pair was bullish.  I think that only having this information is not enough to make anything but a total guess trade.  Let's now bring our attention to the MACD histogram and the bullish hidden divergence that was evident even before the price touched down on the pivot point level.  You could see this divergence forming during the first few candles of this day and maybe even before that.  We can use this as a confirming indicator to tell us what direction we should be looking to trade.  In the above case, we would be looking to go long at a pullback to the pivot point.  We get the pullback and target the R1 level as our profit level where you can see the price consolidated.  

Like I said earlier, I'm just brainstorming and have not seen this exact method anywhere (you may have.)  I am not trading this method either.

I started a new site last week, http://www.allpivotpoints.com that has the latest pivot points for FOREX and 50,000 other securities.   These FOREX pivot points are not derived from any particular market maker, but from 250+ contributors from the interbank market.

Popularity: 1%

All Pivot Points

After a day straight of development, I've completed a good portion of my new site, http://www.allpivotpoints.com.  The site contains pivot point calculations for FOREX, CBOT, NYBOT, NASDAQ, NYSE, CME, and more.  There are still a lot more features to add but functionally, today the site provides pivot points for over 50,000 securities.

Popularity: 2%

8 more currencies added to Daily Pivot Points

I've added 8 more currencies to the Daily Pivot Points section of the website to bring the total to 15:

AUD/USD, EUR/USD, GBP/USD, USD/CAD, USD/CHF, USD/JPY, EUR/JPY, EUR/CHF, EUR/GBP, EUR/NOK, EUR/SEK, NZD/USD, USD/HKD, USD/NOK, USD/SGD

Popularity: 1%

Busy Trading Week

I’ve been keeping a close eye on the charts this week.  I have never quite felt out of the market whether I’m studying the charts or thinking about what might happen next.  While this can be mentally draining, I feel like it is necessary for my training. 

I’ve kept the indicators on my chart quite busy this week as they must constantly dodge each other on the screen.  Yes, I still have too many indicators yet I don’t feel like any of them should be taken away at this point in time.  I am using the following indicators this week:

1.  Ichimoku - I love this indicator. I’m still learning to use it.  Ichimoku actually means "one glance cloud chart."  I’ve found it very useful for support/resistance confirmation.  In addition, the current trend can be determined in a glance.

2.  Trend Lines - Where would any of us be without these

3.  EMA’s - 21 EMA Wave, 8 EMA, and 50 EMA

4.  Bandwidth - Similar to the squeeze.  This indicator is used to indicate volatility or lack thereof

5.  RMOM - An indicator that I developed that uses MACD histogram values to compute whether the existing MACD value is greater than or less than the last up or down segment

6.  RSI (7) - Relative Strength Index (7 period)

7.  Directional Movement Index

8.  MACD(12,26,4)

9.  Pivot Point Oscillator - An indicator that I developed that I find quite useful now that I made modifications to it last night.  I now paint the pivot point values directly on the indicator.  This saves having to plot pivot lines on the price chart.  Using the 15 minute charts can indicate trend nicely.   See the indicator below:

 

 

 

 

 

 

Popularity: 4%

Waiting for a Yen pullback?

I’m waiting on a Yen pullback.  The price has been hanging around the S2 pivot point all day.  Depending on where the pair is during the Asian open, I may be shorting this pair if it pulls back a little more.   Remember that this pair is trending on the 240-minute and momentum indicators aren’t worth a bit.  Right now I’m watching the Directional Movement Index, pivot points, and trendlines.  The pair will have to pull back quite a bit for my continued interest, at least to the high 116’s.

The chart below shows the S2 pivot point at 116.08, .09 below the price (bottom red dotted line).  The pivot point for today was 116.807 (thin solid black line)

 

 

 

 

 

 

 

 

 

 

 

 

Popularity: 2%

Next Page »