Wednesday, March 07, 2007

Day Trading with the Pivots

This post is going to knock off a couple of questions that some readers have posed.

Question 1 - Do you find the Pivot Points contained in Quotetracker to be useless relative to stocks whose opening price gaps-up? Short answer - no - I've used pivot points for a number of years (although I've gotten better with them in the past year than I was before - practice practice practice) and have no issues with the ones generated by Quote Tracker even on a gap-up stock. There are two ways to play gap-ups with pivots - first - wait for the stock to return to the pivot point (i.e. close the gap) and play from there on the rebound or second - play between R1 and R2 or mid-point high (which you can estimate using the EMA 4 or 8). If a stock gaps much beyond R2 I generally don't play it because I've learned that most of those have already blown it for the day.

Question 2 - Have you ever tried Camarilla Pivots? Are they any better/worse than normal pivots? My quick answer was I hadn't but I would look into them. The two figures below show some of the variances using a real trade that I took this morning.

I was out at the open at an appointment and didn't get back to the screens until about 11 A.M. I got my initial screens set-up and the NFI chart came up because I was using it to demonstrate something for Dogwood. I noticed that the price was coming back to the pivot point (I had it on a 4-minute frequency - I changed it to make it less cluttered for this demo). I said to myself - if it bounces off the pivot I'll take a trade - it did and I did. A little before 1 P.M. I closed the trade - right after it went over the R1.

Ordinarily I wouldn't have taken this trade except that it was there and I didn't have anything else set-up at the time. As it turns out I didn't have to sell it off when I did - it went back up through R3 and in fact I expected it too - but I had planned to sell it at that time and so I took the profit and ran. So that's a good example of how to play the pivots on a gap-up. You wait till it hits resistance and comes back. As far as gap-ups coming back - they don't always do they just mostly do. We call those Return to 4 or Return to 8. This one went a bit farther than that but you can see that the EMAs 4 and 8 are both about mid-way between pivot and R1. Imagine that - I don't make this stuff up folks - I really trade.

Here is how this trade looks using Camarilla pivots.

You can see the variances - first the pivot point is exactly the same - but H3 is just 4 cents away (on this chart - sometimes you can't even find it). But the variance between pivot point and H4 is closer than the normal pivot point and R1. I find that consistently from chart to chart and I don't like it. Here is why - most traders who are using pivot points are using the same old fashioned sets that I am - therefore they are watching the same old targets that I am. You should too - that's where the action is.

Now it could be that Quote Tracker doesn't have a correct formula for converting to Camarilla pivots but I doubt that. Either way I think I'm going to stick with what I know and understand - it seems to work - don't you think?

Thanks to Habben - he gave me a reference to Woodies club - and I guess the inventor of Woodies pivots is now making a living teaching others to trade - and that's good for him.


Anonymous said...

Nice post Marlyn.

I watched NFI bounce off R1 and then the Pivot this morning, emphasis on watched.

Seems every stock I attempt to trade immediately goes south on me, so I was too gun shy to attempt NFI today even though the setup was nearly perfect. Grrrr.

Anonymous said...

Thanks for the explanation, Marlyn. Your attention to detail is valued and much appreciated.


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