Conditional and Advanced Pivot Points

Conditional Pivot Points

Additional conditional systems can also be introduced depending on opening prices to provide more data on a given asset’s movement:

This conditional based system alters the calculation of “x” to better provide a recommended pivot point based on the relationship between today’s close and open.  This is known as the DeMark pivot point strategy.  When Today’s Close < Today’s Open, the calculation factors in an additional “today’s low” to lower the value of “X” to maintain a less risky investment based on a decreasing market sentiment.  The opposite is true for Today’s Close > Today’s Open, where the calculation factors in “today’s high” to match the increasing positive market sentiment.  This conditional based approach further allows an investor to make the best decisions based on conditions from the previous day.  The conditional approach changes the calculations based on where the market sentiment is trending towards, and the resulting pivot point recommendations takes that into account. In essence, the conditional approach elevates the magnitude of price movement required to be considered significant.  

These conditional and advanced “standard” calculations are extrapolations from the base model.  There are further advanced pivot point models available to traders, however, it is worth restating the importance of condensing a few of these indicators. Trying to evaluate every single pivot point calculation will blurr traders ability to see through the market instead of illuminating it.

Advanced Pivot Points

Traders seeking a more sophisticated application of pivot points can use the following formula sets to enhance their price projections. 

Use the following abbreviations in reference to equation calculations:

The Camarilla pivot point introduces further resistance and support levels to reinforce market sentiment trends.  When the price moves past the resistance levels, this represents strong indicators of bullish markets.  This strategy also allows for trading within levels based on a variety of scenarios taking place.  These scenarios require an advanced understanding of technical analysis and should be thoroughly researched before being implemented in an investment strategy. 

This Fibonacci pivot point investment strategy is similar to the “standard” pivot point model, however, the Fibonacci model incorporates Fibonacci levels into their calculations.  These Fibonacci ratios are popular among investors and supplement investor strategies by determining critical points where a security’s price momentum is likely to reverse.  Each of the support and resistance levels is in coordination with a respective Fibonacci ratio.

The Woodie pivot point investment strategy is unique due to it’s overweighting of recent price data, where the opening and closing prices are believed to better reflect the mood of the market.  In essence, assigning greater weighting to recent price points makes the indicator more effective at predicting reversions to a short-term mean. That is, there are presumably short-term patterns within longer term patterns for any given security. For those seeking to predict a short-term pattern, it is logical to recognize more recent data points as having greater significance. Accordingly, traders seeking to make very rapid transactions (intra-day) will likely gain the most benefit from the Woodie pivot. 

The Floor pivot point model is another calculation based on previous price data to create relative support and resistance levels.  These respective levels are used to reinforce the market sentiment.

Pivot Points: The Big Picture

In summary, there is no leading pivot point model that works for all traders.  Like many other technical indicators, the pivot point model is best used in combination with other market indicators. Traders using basic support and resistance levels may consider adding pivot-based support and resistance to better identify breakouts and avoid false breakouts.  When using the more advanced pivot point strategies, take the time to learn and understand how to implement the strategy and figure out what works best for you.  Furthermore, take advantage of free online pivot point calculators which expedite the calculation process and allow you to seamlessly incorporate these indicators into a broader trading strategy. 

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