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
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
I did note that Person did not talk of confluence. However, I was unaware until you wrote the below just how much of your system was original to you. Did the senior MM's follow quarterly, semester and annual pivots? Or, is that yours as well?