|
Pivot Points - Monthly Cycle |
  
|
|
Pivot Points - Monthly Cycle |
|
Overview
Pivot points consist of a central pivot level surrounded by three support levels below it and three resistance levels above it. Pivot points were originally used by floor traders on equity and futures exchanges because they provided a quick way for those traders to get a general idea of how the market was moving during the course of the day using only a few simple calculations. However, over time pivot points have also proved exceptionally useful in other markets as well.
One of the reasons that pivot points are now so popular is because they are considered a "leading" (or predictive) indicator rather than a lagging indicator. All that is required to calculate the pivot points for the upcoming (current) trading month is the previous month's high, low, and close prices.
The monthly cycle pivot points in this indicator are calculated according to the following formulas:
Pivot Point for Current Monthly Cycle = (High(Previous Monthly Cycle) + Low(Previous Monthly Cycle) + Close(Previous Monthly Cycle)) / 3
The central pivot point can then be used to calculate the support and resistance levels as follows:
Resistance 1 = (2 * Pivot Point) - Low(Previous Monthly Cycle)
Support 1 = (2 * Pivot Point) - High(Previous Monthly Cycle)
Resistance 2 = (Pivot Point - Support 1) + Resistance 1
Support 2 = Pivot Point - (Resistance 1 - Support 1)
Resistance 3 = (Pivot Point - Support 2) + Resistance 2
Support 3 = Pivot Point - (Resistance 2 - Support 2)
VT Trader also includes support and resistance mid-levels that are calculated as follows:
Resistance Mid-Level 1 = (Pivot Point + Resistance 1) / 2
Support Mid-Level 1 = (Pivot Point + Support 1) / 2
Resistance Mid-Level 2 = (Resistance 1 + Resistance 2) / 2
Support Mid-Level 2 = (Support 1 + Support 2) / 2
Resistance Mid-Level 3 = (Resistance 2 + Resistance 3) / 2
Support Mid-Level 3 = (Support 2 + Support 3) / 2
Interpretation
Pivot point levels can be used in many different ways. Here are a few of the most common methods for utilizing them.
Trend Direction Determined by Pivot Point: Combined with other technical analysis techniques such as overbought/oversold oscillators, volatility measurements, etc., the central pivot point may be useful in determining the general trending direction of the market. Trades are only taken in the direction of the trend. Buy trades occur only when the price is above the central pivot point and sell trades occur only when the price is below the central pivot point.
Price Breakouts: When trading price breakouts, a buy signal occurs when the price breaks up through the central pivot point or one of the resistance levels (typically Resistance 1). A sell signal occurs when price breaks down through the central pivot point or one of the support levels (typically Support 1).
Price Reversals: When trading price reversals, a buy signal occurs when the price moves towards a support level, gets very close to it, touches it, or moves only slightly through it, and then reverses and moves back in the opposite direction. A sell signal occurs when the price moves towards a resistance level, gets very close to it, touches it, or moves only slightly through it, and then reverses and moves back in the opposite direction.
Stop loss and/or Limit Profit Values Determined by Support/Resistance Levels: The central pivot point and its support and resistance levels may be potentially helpful in determining suitable stop loss and/or limit profit placements. For example, if trading a long breakout above the Resistance 1 level it may be reasonable to position a stop loss order just below the central pivot point and one or more limit profit(s) orders at the Resistance 2 and/or Resistance 3 levels.
Implementation
This Pivot Points indicator calculates the pivot points using a monthly cycle that resets at 12:00 AM on the first day of each month.
Please Note: This indicator will not function properly on any chart interval lower than the 30-Minute chart interval. It is not possible for VT Trader to load enough data into those lower chart intervals for the indicator to properly calculate the pivot points. This indicator will also not function properly on a Monthly chart interval. The calculations performed are not designed (nor can they be reprogrammed) to function in the Monthly chart interval.
If the pivot points do not display in the chart window once the indicator is attached, you may need to increase the number of bars that VT Trader loads into its charts. As minimum amounts, VT Trader should load 5,000+ bars into its charts if you intend to attach this Pivot Points indicator to any 30-Minute or higher interval charts.
Construction
1. Click the Ribbon>Technical Analysis menu>Indicators group>Indicator Builder command>Indicator Builder window's [New] button
2. In the General tab, type the following text for each field:
Name: Pivot Points - Monthly Cycle
Function Name Alias: vt_PPIMonthly
Label Mask: Pivot Points - Monthly Cycle (Calculation Time: 12:00AM, 1st of month)
PP = %PivotPoint%, R1 = %Resistance1%, R2 = %Resistance2%, R3 = %Resistance3%
S1 = %Support1%, S2 = %Support2%, S3 = %Support3%
Placement: Price Frame
Data Inspection Alias: Pivot Points - Monthly Cycle
3. In the Input Variable(s) tab, create the following variables:
[New] button...
Name: ShowMidLevels
Display Name: Show Mid-Levels?
Type: Enumeration
Default: click [...] button, [New] button, then create the following entries:
No
Yes
... then, click [OK] button
Default: No
4. In the Output Variable(s) tab, create the following variables:
[New] button...
Var Name: Resistance3
Name: (R3)
Line Color: light blue
Line Width: slightly thicker
Line Type: solid
[New] button...
Var Name: ResistanceMidLevel3
Name: (R3 ML)
Line Color: light blue
Line Width: thin
Line Type: dashed
[New] button...
Var Name: Resistance2
Name: (R2)
Line Color: blue
Line Width: slightly thicker
Line Type: solid
[New] button...
Var Name: ResistanceMidLevel2
Name: (R2 ML)
Line Color: blue
Line Width: thin
Line Type: dashed
[New] button...
Var Name: Resistance1
Name: (R1)
Line Color: dark blue
Line Width: slightly thicker
Line Type: solid
[New] button...
Var Name: ResistanceMidLevel1
Name: (R1 ML)
Line Color: dark blue
Line Width: thin
Line Type: dashed
[New] button...
Var Name: PivotPoint
Name: (Pivot Point)
Line Color: black
Line Width: very thick
Line Type: solid
[New] button...
Var Name: SupportMidLevel1
Name: (S1 ML)
Line Color: dark red
Line Width: thin
Line Type: dashed
[New] button...
Var Name: Support1
Name: (S1)
Line Color: dark red
Line Width: slightly thicker
Line Type: solid
[New] button...
Var Name: SupportMidLevel2
Name: (S2 ML)
Line Color: red
Line Width: thin
Line Type: dashed
[New] button...
Var Name: Support2
Name: (S2)
Line Color: red
Line Width: slightly thicker
Line Type: solid
[New] button...
Var Name: SupportMidLevel3
Name: (S3 ML)
Line Color: light red
Line Width: thin
Line Type: dashed
[New] button...
Var Name: Support3
Name: (S3)
Line Color: light red
Line Width: slightly thicker
Line Type: solid
5. In the Horizontal Line tab, create the following lines:
This indicator requires no horizontal lines.
6. In the Formula tab, copy and paste the following formula:
_Hour:= Hour();
_Minute:= Minute();
CalculationTime:= Cross(Month()<>ref(Month,-1),0.5);
CalculateLookBackPeriods:= Barssince(CalculationTime=1);
LookBackPeriods:= valuewhen(1, Cross(0.5,CalculateLookBackperiods), ref(CalculateLookBackPeriods,-1));
_H:= valuewhen(1,CalculationTime=1,ref(HHV(H,LookBackPeriods),-1));
_L:= valuewhen(1,CalculationTime=1,ref(LLV(L,LookBackPeriods),-1));
_C:= valuewhen(1,CalculationTime=1,C);
PivotPoint:= (_H+_L+_C)/3;
Resistance1:= 2 * PivotPoint - _L;
Resistance2:= PivotPoint + (_H-_L);
Resistance3:= 2 * PivotPoint + (_H-2*_L);
Support1:= 2 * PivotPoint - _H;
Support2:= PivotPoint - (_H-_L);
Support3:= 2 * PivotPoint - (2*_H-_L);
ResistanceMidLevel1:= if(ShowMidLevels=1, (PivotPoint+Resistance1)/2, null);
ResistanceMidLevel2:= if(ShowMidLevels=1, (Resistance1+Resistance2)/2, null);
ResistanceMidLevel3:= if(ShowMidLevels=1, (Resistance2+Resistance3)/2, null);
SupportMidLevel1:= if(ShowMidLevels=1, (PivotPoint+Support1)/2, null);
SupportMidLevel2:= if(ShowMidLevels=1, (Support1+Support2)/2, null);
SupportMidLevel3:= if(ShowMidLevels=1, (Support2+Support3)/2, null);
7. Click the "Save" icon to finish building the Pivot Points - Monthly Cycle indicator.