Trading Success Principles Floor Trader Pivots Trading Concepts, Inc.
Trading Success Principles Floor Trader Pivots By Todd Mitchell Copyright 2014 by Trading Concepts, Inc. All Rights Reserved This training program, or parts thereof, may not be reproduced in any form without the prior written permission of Trading Concepts, Inc. No claim is made by Trading Concepts, Inc. that the E-Mini futures trading strategies shown here will result in profits and will not result in losses. E-Mini futures trading may not be suitable for all recipients of this Training Program. All comments, trading strategies, techniques, concepts and methods shown within our Course are not and should not be construed as an offer to buy or sell futures contracts they are opinions based on market observation and years of experience. Therefore, the thoughts expressed are not guaranteed to produce profits in any way. All opinions are subject to change without notice. Each E-Mini futures trader/investor is responsible for his/her own actions, if any. Your purchase of the Trading Concepts Comprehensive EMINI SUCCESS FORMULA 2.0 Mentoring Program constitutes your agreement to this disclaimer and exempts Trading Concepts from any liability or litigation. Important Notice - Risk Disclaimer: E-Mini futures trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures market. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to buy or sell futures contracts. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in our training program. The past performance of any futures trading strategy or methodology is not necessarily indicative of future results. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual E-Mini futures trading. Also, since the E-Mini futures trades have not actually been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated futures trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those that may be shown. Trading Concepts, Inc. 2
Table of Contents Floor Trader PIVOTS... 4 Floor Pivot Formulas... 6 Getting Accurate HIGH, LOW, and CLOSE Data for Pivot Numbers... 7 Why Floor PIVOTS Work and How They Can Help Give You an Edge... 8 How PIVOTS Can Work Beautifully in Conjunction with Fibonacci Retracements... 9 Trending Days - Chart Examples... 10 Choppy Range-Based Days - Chart Examples... 20 Let s Quickly Sum up the Floor Pivots... 25 Trading Concepts, Inc. 3
Floor Trader PIVOTS As many of you already are aware, there is no secret or mystery behind what floor pivots are. Most of you already have heard of them, right? If not, that s perfectly alright, because you ll learn exactly what you need to know in order to use them properly and effectively right here. For many of you that already use pivots, great, I will show you how I personally use them in my own trading and how it ties in beautifully with the E-Mini Success Formula s overall trading methodology. One other thing, using the pivots in your overall trading plan automatically will help in your discipline (which we all need), because potential entries and exits are determined before the trading day even begins! Pivots are simply support and resistance levels that are calculated by floor traders using a mathematical formula and are one of the most effective and simplest position entry (and exit) techniques you can use. Pivots have been around a long time and are readily available to all retail traders. Unfortunately, many traders are not using pivots correctly; therefore, I want to show you not only the correct way to use them for maximum effectiveness, but how I use them personally. The Best Markets to Use the Floor Trader Pivot Points Are: E-Mini S&P (ES) futures contract Mini-sized Dow (YM) futures contract E-Mini NASDAQ (NQ) futures contract E-Mini Russell (ER) futures contract I also like to use the pivots on the corresponding stock index ETF s via the SPY, DIA, QQQQ, and IWM along with some individual stocks. What you also must remember is that pivot points are price-based (as opposed to indicator-based). As you know by now, I am more interested in and concerned with price and rely more heavily on price than technical indicators. By the time most indicators (i.e. MACD, Stochastics, or RSI) generate a buy or a sell signal, the market move is more than likely not only already under way, but also almost over. By following the pivot points and knowing where they are, you will be getting into a trade well before the indicator-based traders do. This is especially true on choppy range-based days; on these types of days, the indicator-based traders literally get taken to the cleaners. They often get buy signals at (or near) the top of a move, and they often get sell signals near the lows. I, on the other hand, typically will be closing out a position and looking for the next trade setup when the indicator-based traders are getting their heads handed to them. Trading Concepts, Inc. 4
Floor pivots also can be used to help determine what type of trading day it s going to be simply by looking at how the markets react to the pivot levels once they reach them. Let me quickly explain how this works on both trending and choppy rangebased trading days. Trending Days: The market typically will move to a pivot level. Then, it typically either (1) consolidates for 10 to 20 minutes and then continues to move in the direction of the trend or (2) blows right through these numbers without any hesitation. On these types of days, it is best to wait for the market to move through the pivot level and then look to (potentially) buy or sell the first pullback to that pivot level. Choppy Range-Based Days: The market usually will move up to a pivot level and either move back down off that level immediately or just consolidate near that level before drifting back in the direction from which the market originally came. A lot of traders get whipsawed during these types of trading days and end up losing money. The pivots are set up to be faded on these types of days and are one of the few profitable ways to trade these narrow range, low volume, trading days. Since there are many different ways you can calculate the pivot numbers, let me show you what formula we use here inside the E-Mini Success Formula. Trading Concepts, Inc. 5
Floor Pivot Formulas (R stands for RESISTANCE, and S stands for SUPPORT) The PIVOT Calculations and How They Look on a Chart: R3: R1 + (High Low) R2: Pivot + (High Low) R1: 2 X Pivot Low PIVOT: (High + Low + Close)/3 S1: 2 X Pivot High S2: Pivot (High-Low) S3: S1 (High Low) Trading Concepts, Inc. 6
Getting Accurate HIGH, LOW, and CLOSE Data for the Pivot Numbers What you need to do is simply obtain the previous trading session s (9:30am ET to 4:15pm ET) HIGH, LOW, and CLOSE to figure out these pivot levels. Also, look to use the settlement price for the CLOSE in this calculation. If any of you are unsure of the settlement price (the CLOSE), you can check it for yourself on the ES, NQ, and YM at www.cmegroup.com; go to Equity Index and select the appropriate Index Futures Contract and then look under the Prior Settle column. For the TF, you can go to www.theice.com and find the Russell 2000 Settle price under Featured Products. One way to make it even easier to get accurate HIGH, LOW, and CLOSE data is simply to set up a daily chart with the markets of your choice. Since I use TradeStation, I simply input the continuous data symbols, such as @ES.D, @NQ.D, @YM.D, and @TF.D. The D stands for day session only; there is no overnight session in those symbols. If you were to leave off the D (i.e. @ES), that would give you the night session too. I personally prefer the dayonly data when using the daily charts (i.e. @ES.D, @NQ.D, @YM.D, and @TF.D). To help make it even easier, I had software developed that automatically plots these floor pivots on my charts each trading day. If you are interested in using this software to help make it easier for you too, simply go to: www.tradingconceptsinc.com. The software I had created for this is called the TCI Floor Pivots. One Other Really Quick Note Relating to These Pivots: It is pretty rare for a stock index futures contract to reach the daily R3 or S3 pivot levels. Many bigger market rallies or selloffs reach these R3 and/or S3 levels, but many times, these levels become the HIGH or LOW (or very near the HIGH or near the LOW) of the day. Using the floor trader pivots also will help you become more disciplined by the simple fact that you already will have these pivot levels calculated before the market opens each day. What this will do is allow you to see in advance where potential support and resistance should occur during the trading day. So, in respect to these floor pivots, you potentially will be able to place exact entries, stops, or targets before a trade is even entered (assuming they line up with some of the other trading strategies you are learning in this mentoring program). You soon will see examples of this all coming together. Trading Concepts, Inc. 7
Why Floor PIVOTS Work and How They Can Help Give You an Edge in Your Trading I would say the biggest reason why floor pivot support and resistance numbers work so well is simply because a lot of traders (on and off the floor) watch these levels and use them in their trading therefore making this a self-fulfilling prophecy. That being said, there is lot of psychology behind why the pivots tend to work so well; wouldn t you agree? Alright, here are three other reasons why floor trader pivots tend to work so well: 1) As many of you know, floor traders in the pits look to scalp the market during the day, and one of the trading tools they use is the floor pivots. Floor Traders use these pivot levels to base their entries (and exits) and also to help gauge market price action. 2) Another reason these pivot levels work so well has to do with the majority of inexperienced traders off the floor. Why, you ask? Simple; many traders rely (solely) on a bunch of technical indicators for their trading decisions. Therefore, they oftentimes are getting in and out of their trades too late. 3) The overreliance on technical indicators by the majority of traders is definitely what helps the floor pivots work so well. The bottom line is that price action is pure. Please remember, because all market technical indicators are lagging, they all are the wrong indicators. Therefore, pivots are a powerful tool because they are part of price action. I hope you can see by now why Floor Trader PIVOTS can help give you an edge in your trading and how they can be extremely useful in your overall trading plan. Trading Concepts, Inc. 8
How PIVOTS Can Work Beautifully in Conjunction with Fibonacci Retracements Since we already have discussed Fibonacci retracements, I m sure you probably can guess how the pivots can be used in conjunction with the retracements. You re right if you answered with the word Confluence! What I m talking about here is when you draw your Fibonacci levels from various time frames (i.e. 3 minute, 30 minute, 60 minute, daily, and weekly charts), you can then take these Fibonacci levels (confluence areas) and see if the pivot levels fall within these Fibonacci price zones. Once you start to see these various support and resistance price levels (i.e. pivots and Fibonacci levels) coming together, these areas can be very powerful buy and sell areas in which to take potential trades in the market. Let s take a look at a few examples to show you what I m talking about here. Chart Example LEFT: A great first retracement BUY (LONG Entry) back to the Daily Pivot (PV) once it was broken to the upside at Mid to Lower Keltner Band near the 38% Fibs of the First Hour. Chart Example RIGHT: A great first retracement SELL (SHORT Entry) back to Daily S1 once it was broken to the downside at Mid to Upper Keltner Band near the 62% Fibs of the First Hour. Trading Concepts, Inc. 9
Trending Days - Chart Examples The market typically will move to a pivot level. Then, it typically either (1) consolidates for 10 to 20 minutes and then continues to move in the direction of the trend or (2) blows right through these numbers without any hesitation. On these types of days, it is best to wait for the market to move through the pivot level and then look to (potentially) buy or sell the first pullback to that pivot level. Trading Concepts, Inc. 10
Trending Days Chart Example 1 Monthly R1 acted as SUPPORT holding the LOW of the Day. Daily Pivot (PV) acted as great SUPPORT once broken to the upside and set up a beautiful First Retracement LONG Entry at Mid to Lower Keltner Band. Once Daily R1 was broken to the upside, it then acted as SUPPORT to further confirm continuation of the UP Trend. (see detailed discussion in Video) Trading Concepts, Inc. 11
Trending Days Chart Example 2 Daily R1 held as RESISTANCE during the morning trading hours until broken to the upside in which Daily R1 should have then acted as SUPPORT however, it was a false signal. Daily Pivot (PV) held as SUPPORT setting up a great SHORT Entry on the First Pullback to the MAs. Daily PV eventually became RESISTANCE once broken to the downside setting up another successive SHORT Entry into the Overall Trend at/near Mid to Upper Keltner Band. Monthly R1 held the LOW of the Day. (See detailed discussion in Video) Trading Concepts, Inc. 12
Trending Days Chart Example 3 Daily S1 set up a great SHORT Entry on the First Pullback at Mid to Upper Keltner Band. Daily S2 and Monthly R1 in confluence acted as SUPPORT (twice) and held the LOW of the Day. Market rallied quickly off Monthly R1 in late afternoon trading all the way to the Daily Pivot (PV). Daily PV ended up holding the HIGH of the Day. (See detailed discussion in Video) Trading Concepts, Inc. 13
Trending Days Chart Example 4 Daily Pivot (PV) acted as RESISTANCE and held the HIGH of the Day. The market blew through Daily S1. Daily S2 and Daily S3 held as minor SUPPORT, once Daily S3 was broken it then held as beautiful RESISTANCE back up into the MAs. (See detailed discussion in Video) Trading Concepts, Inc. 14
Trending Days Chart Example 5 Daily S1 held the LOW of the Day. Daily Pivot (PV) acted as RESISTANCE once broken to the downside. Daily Pivot (PV) then acted as SUPPORT once broken to the upside setting up a great LONG Entry at Mid to Lower Keltner Band. (See detailed discussion in Video) Trading Concepts, Inc. 15
Trending Days Chart Example 6 Monthly Pivot (PV) and Daily Pivot (PV) in confluence acting as RESISTANCE near the HIGH of the Day. Daily S1 acted as SUPPORT mid-day until broken to the downside after the First Pullback to the MAs at Time of Day when you would expect a Resumption of the Trend. (See detailed discussion in Video) Trading Concepts, Inc. 16
Trending Days Chart Example 7 Monthly Pivot (PV) and Daily R1 initially held as SUPPORT right out of the gate. Daily Pivot (PV) acted as RESISTANCE once broken to the downside and provided a great SHORT Entry at Mid to Upper Keltner Band near the MAs at a Time of Day when you would expect a Resumption of the Trend. (See detailed discussion in Video) Trading Concepts, Inc. 17
Trending Days Chart Example 8 Daily S1 acting as RESISTANCE near the HIGH of the Day. Daily S2 acting as RESISTANCE just above Mid to Upper Keltner Band once broken to the downside and again as RESISTANCE at a Time of Day when you would expect a Resumption of the Trend. Daily S3 held as LOW of the Day. (See detailed discussion in Video) Trading Concepts, Inc. 18
Trending Days Chart Example 9 Daily S1 acted as great SUPPORT holding near the LOW of the Day. Daily Pivot (PV) acted as RESISTANCE back up into the MAs. Daily PV then acted as great SUPPORT once broken to the upside. (See detailed discussion in Video) Trading Concepts, Inc. 19
Choppy Range-Based Days Chart Examples The market usually will move up to a pivot level and either move back down off that level immediately or just consolidate near that level before drifting back in the direction from which the market originally came. A lot of traders get whipsawed during these types of trading days and end up losing money. The pivots are set up to be faded on these types of days and are one of the few profitable ways to trade these narrow range, low volume, trading days. Trading Concepts, Inc. 20
Choppy Range-Based Day Chart Example 1 Daily Pivot (PV) held the LOW of the Day. Daily R1 acted as RESISTANCE and held the HIGH of the Day. (See detailed discussion in Video) Trading Concepts, Inc. 21
Choppy Range-Based Day Chart Example 2 Daily R1 held as SUPPORT once it was broken to the upside and set up a great LONG Entry at Mid to Lower Keltner Band. Daily R2 acted as RESISTANCE and held as the HIGH of the Day. (See detailed discussion in Video) Trading Concepts, Inc. 22
Choppy Range-Based Day Chart Example 3 Monthly Pivot (PV) and Daily R1 in confluence acting as RESISTANCE near the HIGH of the Day. Daily Pivot acting as SUPPORT near the LOW of the Day. (See detailed discussion in Video) Trading Concepts, Inc. 23
Choppy Range-Based Day Chart Example 4 Daily R1 held the HIGH of the Day (twice). Daily Pivot (PV) held as major SUPPORT (twice) once broken to the upside. (See detailed discussion in Video) Trading Concepts, Inc. 24
Let s Quickly Sum up the Floor Pivots Let s face it; one of the major reasons why the floor pivots work so well is because so many traders on and off the floor use them, therefore creating a self-fulfilling prophecy (similar to Fibonacci retracements). Remember that price action is pure, and these pivot levels are part of price action. Traders that rely on technical indicators will chase the market when the market already has moved halfway to three-quarters of the move, whereas those of us who use these floor pivots as part of our overall trading plan already will be in and will be ready to exit the market with a profit. So, since none of us wants to get in and out of the daily market cycles too late therefore piling up losses by consistent whipsaws we need to use the price action of pivot levels in our overall trading plan (as you ve seen in countless examples). As you clearly can see by now, having these pivot levels at your disposal before the open each trading day will help greatly in your overall trading success. Trading Concepts, Inc. 25