E-Mini Trading: Trading Pivot Points Effectively

E-Mini Trading: Trading Pivot Points Effectively

Let me say from the onset that there are a great number of individuals who rely heavily on trading daily pivot points in their e-mini trading. I am not one of those individuals, but I do chart daily pivots as a frame of reference in my trading. On some days, the market pays especially close attention to pivots, and on other days they are completely irrelevant, as if they did not exist. I have yet to find a system that can tell me which day pivot points are going to be relevant, and on which days they are going to be irrelevant.The basic formula for calculating pivots is:

Pivot point = P = (H + L + C)/3

First area of resistance = R1 = 2P - L

First area of support = S1 = 2P - H

Second area of resistance = R2 = (P -S1) + R1

Second area of support = S2 = P - (R2 - S1)

There are, however, a number of different pivot point systems of which you should be aware. These systems include:

Floor Pivot Points: These calculations are referenced above. They have been popular with traders for years and calculate up to three support/resistance levels. You can actually get more support and resistance levels by continuing the formula, but it is generally not necessary.

Woodie's Pivot Points: This pivot point system is similar to the floor formula but use a different calculation method. In this system, more weight is emphasized on the close of the previous period. I personally use this particular pivot system.

Camarilla Pivot Points: While not explicitly defined as pivot points, the system identifies eight levels which resemble support/resistance level for a given period. The origin and methodology of this system is unclear, and they enjoy limited popularity.

Tom DeMark's Pivot Points: This system is another hybrid pivot point system designed to predict the highs and lows in a selected trading time frame.

As you can see, there are a number of systems that traders use to calculate pivots. In the truest sense, pivots are a leading indicator (though hypothetical) for market performance and directionality. In my experience, most traders use Floor Pivots and Woodie's Pivots, while a minority uses the other two pivot systems. Regardless of their effectiveness, it is a daily ritual for me to draw in specific pivots on my chart. It should be a habit you should also develop.

In summary, we have pointed out that pivots can be very important on certain days and on other days can be of lesser importance. I have even seen days when during the morning session the market ignores pivot points, yet in the afternoon session it adheres to them strictly. For that reason alone, pivots should be on your daily chart. We have also identified several different pivot calculation methods and pointed out the most popular systems in use. For most people, Floor Pivots will be a logical starting point, and experimentation with other systems may improve your trading.

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