Do Pivot Points work?
Testing Pivot Points
Do Pivot/Resistance/Support Points and Levels Work?
This is a very wide ranging question and has many answers
ranging from not at all to very well. Trading a strategy that
involves using pivots, support, and resistance levels will only be
successful if the right money management strategy is used with it.
Combining the infinite number of money management strategies into
this brief article will make it impossible to reach an end.
This article will therefore, by necessity, limit itself to
working out the probability of a reversal happening at a pivot,
support or resistance area. This will be compared to the
probability of the market reversing anywhere in the range between
the lowest support and highest resistance point.
First of all let us simplify the problem to make it possible to
gauge the probability of the market reversing close to one of the
pivot points. The term
pivot points will from now on be used to refer to any of the
pivot, support, resistance points.
Formulae used
PP = (HIGH + LOW + CLOSE) / 3
S1 = (2 * PP) - HIGH
S2 = PP - RANGE
S3 = S2 - RANGE
R1 = (2 * PP) - LOW
R2 = PP + RANGE
R3 = R2 + RANGE
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