STRATEGIES

Before the advent of computers and charting software, pit traders and market makers used this method to figure out where the markets might be heading. These days, it is part of most traders’ toolboxes, but MoneyShow’s Tom Aspray shows how one special time frame can spot key levels well in advance.

Currently if you ask any audience of traders if they have heard of or use pivot levels almost every hand will go up, however that wasn’t always the case. I first remember hearing about pivot point analysis from the late Manning Stoller in the 1980s. He was the developer of the starc bands that I frequently use in my analysis.

I have always felt it was important to give credit to those who originally developed or used a particular analytical tool. I still refer to the TRIN as the ARMs Index as it was developed by an old friend Dick Arms.  My favorite volume tool, of course, is the on-balance volume (OBV) and I frequently give credit to its creator, Joe Granville.

In these trading lessons, I either try to explain how I use a particular technical tool or provide my analysis on the markets. I restrict my detailed analysis of indicators to only those tools where the formula is fully disclosed.

In the mid-1990s, I published weekly and daily pivot levels for the cash forex markets to my institutional clients. At that time the formula was not widely distributed.  I even recall that there were a few services that sold the pivot levels for a price. I concluded that the weekly levels were often not reliable enough for me and the pivot levels were not available in most technical analysis programs.

That changed in 2004 with the publication of John Person’s book Complete Guide to Technical Trading Tactics: How to Profit Using Pivot Points, Candlesticks & Other Indicators. In the following years, he gave numerous presentations of his methods at The Traders Expos, and by 2007 pivot points were a common feature of pretty much every trading or technical analysis program.

I had never thought about doing monthly pivot analysis until I read John’s books and later found out that he had been using pivot point analysis for over 20 years. I was even more fascinated a couple of years ago when he let me in on the secret of quarterly pivot point analysis. It was something that he had never revealed publicly, and therefore I did not incorporate them into my analysis.

John now discusses them in his latest book, Mastering the Stock Market: High Probability Market Timing and Stock Selection Tools, published this month by Wiley. Therefore, I now plan on referring to them in my analysis. 

In this trading lesson, I will review how I use them and then show you how John has incorporated them into his trading and highlight how they can be combined with one of his most reliable seasonal patterns.

The basic formulas are now well known and pivot calculators are readily available on the Internet.

R2 = P + (H - L) = P + (R1 - S1)
R1 = (P x 2) – L
P = (H + L + C)/3
S1 = (P x 2) – H
S2 = P - (H - L) = P - (R1 - S1)

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Tickers Mentioned: Tickers: SPY, AAPL