Pivot Point Formula in VS .NET

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Pivot Point Formula
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global economies as well. The Persian Gulf war had taken place, the former Soviet Union was coming apart, East and West Germany were reuniting and, as you know, 24-hour trading was emerging. Markets were now open constantly. New markets were being launched or evolving around the globe, too the CAC, the DAX, the MATIF, and many other foreign stock, futures, and options exchanges. I got back in business at First American Discount Corp. with Bill Mallers Sr., a former chairman of the Chicago Board of Trade. He introduced me to this secret technique he was developing for a trading program. As it turned out, a portion of this top-secret method was, not surprisingly, pivot point analysis. The kicker is that traders are still using this analysis today, and I incorporate it on a daily, weekly, and monthly basis. That background is what this chapter is all about. I want to demonstrate that the pivot point analysis formula works on different markets and on different time frames.
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PIVOT POINT FORMULA
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The pivot point number is the sum of the high, low, and close divided by three. This is the basis for the other pivot point analysis calculations. Here is the common mathematical formula for pivot point analysis where P = pivot point, C = close, H = high, and L = low: H+L+C P = 3 To get the first resistance level (R1), take the pivot point number times two and then subtract the low: R1 = (P 2) L To find the second resistance area (R2), add the high to the pivot point number and then subtract the low: R2 = (P + H) L For the first support level (S1), take the pivot point number times two and then subtract the high: S1 = (P 2) H For the second support area (S2), subtract the high from the pivot point number and then add the low: S2 = (P H) + L
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PIVOT POINT ANALYSIS: A Powerful Weapon
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Some people have experimented with different variations to account for the entire time period s price action. For example, one variation adds the open to the high, low, and close and then divides by four to derive the pivot point value. I do not use this variation as it is an additional variable to input, and the importance for the pivot point is in the weight the close has in relationship to the high and low or the range. One trader asked me how to change the numbers to take into consideration those markets that trade 20 or 24 hours a day around the clock and then experience tremendous gaps on the next day s regular session open. An approach that we discussed was to use the open of the next day instead of the close from the prior day to calculate the pivot point. Then the support and resistance formulas would apply for the balance of the calculations. However, I have several issues with this method. For one, you have no time to prepare for your trading day because you need to wait until the open. More important, I apply the prior night s session high or low that would include the day session range, whichever figure is greater, and then use the day session s close. For example, the time period for e-mini S&Ps begins at 3:45 p.m. (Central time), and the close is the following day at 3:15 p.m. I use the high and low during that entire session for the day s range. I apply the same concept to other markets, including the mini-sized Dow, bonds, currencies, and metals.
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BEHIND THE ANALYSIS
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Whatever formula you use to get the pivot point number that is the basis of this analysis, you can see that it involves several steps and is somewhat detailed. Here is my interpretation for the rationale behind the calculations. Consider the pivot point as the average of the previous session s trading range combined with the closing price. The numbers of support and resistance that are calculated indicate the potential ranges for the next time frame, based on the past weight of the market s strength or weakness derived from calculating the high, low, and distance from the close of those points. Pivot point analysis is also used to identify breakout points from the support and resistance numbers. The previous session s trading range could be based on an hour, a day, a week, or a month. Most trading software includes these numbers on a daily basis so that you do not have the tedious chore of doing it the old-fashion way by hand using a calculator. (The really old-fashion way doesn t use even a calculator). Don t make your job harder; try the easy way using a computer program like the one I developed so that I can calculate the numbers on a daily, weekly, and monthly time period relatively quickly and for most markets (available to clients by fax or e-mail, or by viewing on line).
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