As of 10/07/2024
Indus: 41,954 -398.51 -0.9%
Trans: 15,783 -31.37 -0.2%
Utils: 1,027 -24.05 -2.3%
Nasdaq: 17,924 -213.95 -1.2%
S&P 500: 5,696 -55.13 -1.0%
|
YTD
+11.3%
-0.7%
+16.5%
+19.4%
+19.4%
|
 43,500 or 41,600 by 10/15/202416,800 or 15,700 by 10/15/20241,125 or 1,025 by 10/15/202419,000 or 17,600 by 10/15/20245,900 or 5,600 by 10/15/2024 |
As of 10/07/2024
Indus: 41,954 -398.51 -0.9%
Trans: 15,783 -31.37 -0.2%
Utils: 1,027 -24.05 -2.3%
Nasdaq: 17,924 -213.95 -1.2%
S&P 500: 5,696 -55.13 -1.0%
|
YTD
+11.3%
-0.7%
+16.5%
+19.4%
+19.4%
| |
|
43,500 or 41,600 by 10/15/202416,800 or 15,700 by 10/15/20241,125 or 1,025 by 10/15/202419,000 or 17,600 by 10/15/20245,900 or 5,600 by 10/15/2024 | ||
This article discusses whether intraday (day trading) pivot points in the stock market works.
Testing using intraday data on the 1-minute scale through both bull and bear markets shows that pivots using the standard formulas for pivot points works from 51% to 60% of the time. Other pivot formulas work better (Modified pivots: up to 61% of the time) and worse (Fibonacci pivots: 28% to 36% of the time).
Pivot points came into being to help floor traders determine support and resistance levels before the trading day began. That allowed them to concentrate on trading instead of number crunching.
I found three sets of formulas to calculate the pivots, but will only discuss two of them.
Here is the first.
If the day's high is 12, the close is 11 and the low is 10, R2 = 13, R1 = 12, P = 11, S1 = 10 and S2 = 9. Those become the support and resistance levels for the next day.
The next pivot point formulas are the same, but they look different.
The formulas for R2 and S2 change, but if you plug in the numbers, you get the same results: R2 = 11 + (12 - 10) or 13 and S2 = 11 - (12 - 10) or 9. They are equivalent formulas.
I prefer the first set of equations because it is easier to plug in the high and low prices instead of calculating R1 and S1 first.
For example, here is a picture of Alcoa (AA) on the 5-minute scale.
The day's high on 2/7/2003 is 19.91, the low is 19.53 and the close is 19.65.
Plugging those numbers into the pivot formulas, give the pivot lines as shown by the horizontal dashed cyan lines. R2 is not shown because it is above the top of the chart.
The pivots show the predicted support and resistance areas for the next day's trading (2/10/03). Notice that the stock seemed to ignore the pivots by rising above R1 just after the open, dropping through P, trending up above R1 again, then finding support near P, before closing above R1 again.
The stock traded in a narrow range but with only one valley showing support at P near the close.
I used data covering both bull (2/2003 to 12/2005) and bear (2/2007 to 2/2009) markets on 55 stocks on the 1-minute scale. I used a 3 cent band above and below (6 cents total) each pivot point (P, R1, and so on) when trying to determine if price turned near the pivot. If the bands overlapped (including a buffer), I excluded that day's data. In other words, the stock had to have a tall high-low trading range. The minimum high-low range was approximately 44 cents.
The first test counted how many significant (the highest high or lowest low from 5 bars before to 5 bars after or 11 bars total of a peak or valley). peaks or valleys appeared within each pivot band. The test showed how often price found support or resistance near a pivot.
The next test counted how often price transited the band, either from above the band to below it, or below it to above it. This test showed how often the pivot failed to show support or resistance.
I used the pivots as defined by the formulas discussed earlier and found that the pivots worked more often than I expected. Here are the results
| P | R1 | S1 | R2 | S2 | |
|---|---|---|---|---|---|
| Standard Pivots Below | |||||
| Support | 55% | 53% | 58% | 55% | 54% |
| Resistance | 56% | 60% | 51% | 56% | 51% |
| Modified Pivots Below | |||||
| Support | 57% | 55% | 59% | 46% | 48% |
| Resistance | 58% | 61% | 53% | 51% | 43% |
| Fibonacci Pivots Below | |||||
| Support | 36% | 35% | 33% | 29% | 32% |
| Resistance | 36% | 34% | 35% | 34% | 28% |
The first set of lines show support and resistance at the various pivot points (P, R1 and so on). For example, I found that price formed 80,228 valleys during the test period and in another 64,844 cases, price sailed right through P without stopping. The ratio, 80,228/(80,228 + 64,844) gives 55% which I show in the cell.
The next line down shows resistance. In a similar manner, I found peaks that showed price turning within the 6 cent bands surrounding P and the other times were those when price sailed right on through. The ratio, 56%, appears in the table.
The two lines below Modified Pivots used the same methodology except that I changed the formulas. Here is what I used for this test.
I set the day's high to R1, the low to S1, took the average of the day's high-low range for P and doubled that range for R2 and S2. The numbers in the table show that this worked better in all cases except S2 and R2. I did not choose these formulas for any reason. I just tried them as a type of "control" group to see how they worked compared to the standard formulas.
The last set uses pivots based on a Fibonacci retrace value of 38%. Here are the formulas.
The day's high becomes R2, the day's low is S2, the pivot remains the same as the prior P formula, and R1 is a 38% retrace of the high-low range down from the high. S1 is the same measure up from the day's low. These pivots, probably because they were so narrow, flopped. They are the worse performing of the bunch.
-- Thomas Bulkowski
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