Lessons From The Multi-Pivots For June 20, 2011

[Pascal]

Billy or Pascal,
The GDX robot gave a new signal to buy at $51.57. Is the robot telling us to wait for a drop to the $51.57 before buying? If so, the strong MF into the sector may not give us to opportunity to by at $51.57. If the train leaves the station should we chase the price or wait for robot entry price?
Steve

Really, we cannot advise explicitly on this point.
In the long run, buying at the open for GDX is also working fine as the back-test has shown.
On the other hand, the GDX ATR is 2.82% right now. The buy point is 0.77% below last Friday's close. This means that statistically, the buy point is well within the usual day volatility.


Pascal

[slgerritz]

Pascal,
Where is the GDX ATR of 2.82 derived from? On freecharts.com is says it has a daily ATR 14 of 1.46.
Steve

Really, we cannot advise explicitly on this point.
In the long run, buying at the open for GDX is also working fine as the back-test has shown.
On the other hand, the GDX ATR is 2.82% right now. The buy point is 0.77% below last Friday's close. This means that statistically, the buy point is well within the usual day volatility.


Pascal

[Pascal]

Pascal,
Where is the GDX ATR of 2.82 derived from? On freecharts.com is says it has a daily ATR 14 of 1.46.
Steve

We are using a 20D ATR.

Pascal

[adam ali]

Billy,

Stockcharts.com have recently instituted pivots on their charts. In their blog, they list their standard pivot calculation as the following:

Pivot Point (P) = (High + Low + Close)/3

Support 1 (S1) = (P x 2) - High

Support 2 (S2) = P - (High - Low)

Resistance 1 (R1) = (P x 2) - Low

Resistance 2 (R2) = P + (High - Low)

This appears different than the calculation used on this site. If true, do you happen to know why the difference?

Adam

[Billy]

Billy,

Stockcharts.com have recently instituted pivots on their charts. In their blog, they list their standard pivot calculation as the following:

Pivot Point (P) = (High + Low + Close)/3

Support 1 (S1) = (P x 2) - High

Support 2 (S2) = P - (High - Low)

Resistance 1 (R1) = (P x 2) - Low

Resistance 2 (R2) = P + (High - Low)

This appears different than the calculation used on this site. If true, do you happen to know why the difference?

Adam

Adam,
I have no idea what they're trying to do. First, using only 2 levels of support and resistance is useless. Second, their computation, even with their formulas are wrong.
They probably are trying to align on freestockcharts because I saw that they added VWAP too.
I don't recommend relying on their pivots as they are displayed now.
Many sophisticated variations of the formulas have been introduced over the years and most were only marketing gimmicks. What I'm sure is that the classic formulas are working perfectly for setup planning purposes so I don't see any use deviating from them. Stockcharts is an excellent technical analysis resource, but not a very good trading resource.
Billy

[adam ali]

Thanks for the heads up on this. One final question and it may be in one of the (few) books/articles on pivots out there: how did this methodology come to be in terms of its statistical/theoretical foundation? I'm wondering how someone one day decided to take the high, low and close, divide by three, etc. and said "That works!"

[Billy]

Thanks for the heads up on this. One final question and it may be in one of the (few) books/articles on pivots out there: how did this methodology come to be in terms of its statistical/theoretical foundation? I'm wondering how someone one day decided to take the high, low and close, divide by three, etc. and said "That works!"

If anyone can find a reliable historical source for this I would be most grateful!
My hypothesis is that many decades ago, before the age of computers and light-speed trading, when most floor traders were lowly-educated people who never graduated in anything, they needed easy-to-compute formulas for defining intermediate levels for sizing in and out of their positions.
One day a statistician made a study and probably discovered the bell curve standard deviation structure of the pivot formulas. It started to work for one, then a few, then several, then many floor traders as the word spread around, further reinforcing the self-prophecy nature of the pivots.
I remember my first days as a market maker trainee, expecting complicated technical analysis and charting trading lessons. I never saw any chart or any technical analysis. Only spreadsheets with the house position's average price compared to the various floor levels. And it worked!
Billy