Reply To: Pivot Points - Penguin Traders

[ Saver0 ]January 20, 2015 at 4:20 pm #4311

Moderator

I’m really glad that you started this thread @CSendo. Past week I did some testing on pivots with @PiratePip and made some very interesting discoveries. He wanted me to keep things private hence I won’t be sharing the indicator until he is cool with me making it public.

I used the standard pivot calculation and I looked at H1, H4 and daily pivots. I tested scenarios similar to this:
What is the probability of price touching S1 vs R1 when price hit PP level. Whats the probability of price going to R3 or R1 from R2, etc. Bullish/Bearish start is where the price was at relatively to the PP level. If its above, then its considered bullish start. The first set of stats are for any start. Then I categorized it into bullish/bearish start to see if there are any trends depending on the start.

For example, PV -> S1: [1136] 48.9% | R1: [1188] 51.1%
This means, when the price was at PV, it went to S1 1136 times and R1 1182 times and those were the percentages.

I started with a smaller sample size like 5000 bars for H4 pivots and I saw an edge when trading R3/S3 levels since at these levels we can expect a pull back during trends. For example, imagine its an up trend and the price reaches S3, now there is a higher chance that the price will come up to S2 instead of S4 (go up). BUT, what I noticed is that once I increase the sample size, the probabilities continuously reached 50%. The results that you see is when I looked at 500k bars. What this tells me is the balanced nature of the market. If we were to make any random entry, the chance of it going up or down 20 pips is 50%. Pivots in this pure random entry point of view is just that.

The edge is when we trade with a sense of direction. That’s when S3/R3 will have meaning. They will play as over extensions and could provide > 80% edge.

Not to take this thread out of topic.. I have made a similar conclusion about TZs as well. That they are just random price levels. On each chart there are many pTZs that can get hit above and top. The only edge that I see is in being able to determine direction. I’m starting to see the power of the candles with this. I’m making a new series of indicators based purely on candles now