Quote Originally Posted by adam ali View Post
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