Friday, September 26, 2008

Weekly Pivots Update

Last week's study predicted that this week's pivot range would contract significantly, which is clearly the way it turned out. Had Thursday afternoon's bailout plan not been torpedoed, I suspect the pivot range might have looked a little different, but this is the way it turned out.
I've added an orange colored block on the pivot range scale to designate the close of the week, just to show how the week's momentum ended. You'll notice right away that the closing values do not correspond exactly with the pivot values, but that's because the pivot values are fixed, so the orange cells are just the closest value to the close that the pivots will allow. I hope that's not too confusing.
Current financial conditions are unprecedented and the impact on the markets still has a long way to go to be sorted out. No news there and, as I've mentioned previously, technical analysis is most effective in providing a trading edge when market parameters are identifiable. This is currently not the case, and it should come as no surprise that volume has almost been chopped in half this week for our little ETF basket as the smart money sits on the sidelines.
IMHO the best course of action at this point is to stand back and avoid becoming collateral damage as the "smartest guys in the room" decide how they'll spend the few remaining tax dollars that are left in the treasury and/or develop some creative new taxes to finance a bailout of the greediest guys in the room, now sanitized as a "financial rescue plan".
For my own account I'm trading small for the time being, focusing on the opening gaps and intraday pivot swings that are my bread and butter. The weekly pivot chart above is now in a position for explosive range expansion. Whether that expansion will come to past next week remains to be seen, but it will happen shortly as the pivot spring is now tightly coiled.


LP said...


I notice that you do a lot of Pivot based of trading. Have you looked into making trades from a mean reversion perspective.

I've tried doing this with with a bunch of SMAs. However, the condition on my studies is that prices have to be far enough away from that moving average, so that risk reward remains in our favor. Basically enter when the rubber band is stretched to max. Unfortunately, this results in fewer trades but more winner trades and higher Profit Factor.


bzbtrader said...

Thanks for checking in.
The goal of the weekly pivot study is to use it as a main component in a mean reversion trading model, as I tried to explain in my post of Sept 11th. So far, it's been very predictive of range expansion or contraction for the weekly bars. I still like the idea of coupling the weekly pivots with a butterfly, either puts or calls, when the trend is towards contraction, but the coding and testing of that whole strategy is still underway.

LP said...


That really cool. I was just thinking of coupling mean reversion along with options. I look forward to seeing your results. In the mean time I will check out your post.