Proper Data To Caluculate Pivot Points For Daily, Weekly, Momthly, Yearly
I have few questions regarding pivot points. The questions are based on hypothetical scenarios. The questions are as follows below. The involved market is ES.
1. Let's suppose that today is 03/13/2014, the second Thursday of the expiration month(the rollover day). Which contract month should I use to derive the Daily pivot points to trade on this day? The data points of 03/12/2014(the day before the rollover day)of March contract(the expiring contract), The data points of 03/12/2014 of June contract, or synthetic contract series such as some sort of Continuous contract? I know that some of you do not agree with the idea of trading on rollover days. However, please remember that this is only a hypothetical scenario.
2. On the same day(03/13/2014), which contract month should I utilize to calculate the Weekly pivot points? The data points of prior week from 03/03/2014 to 03/07/2014 of March contract, the data points of prior week from 03/03/2014 to 03/07/2014 of June contract, or from Continuous contract?
3. Let's suppose that today is 03/17/2014. Which contract month should I use to come up with Weekly pivot points for trading this particular trading week starting from 03/17/2014 to 03/21/2014? The data points of prior week from 03/10/2014 to 03/14/2014 of March contract, The data points of prior week from 03/10/2014 to 03/14/2014 of June contract, or Continuous contract?
4. Let's suppose that today is 03/31/2014, the last trading day of the month of March. On this day, should I use the Monthly pivot point values derived from calculation based on the data points from the period running from 02/03/2014 to 02/28/2014 of March contract? I know that this question may seem very odd to a lot of you but please bear with me on this conjectural exercise. The reason for this question is that, as you are aware, 03/31/2014 is the first trading day of the week as well as the last trading day of the month of March.
5. On the day of 04/01/2014, which contract month should I use to calculate the Monthly pivot points? March contract or June contract? Or some other data series?
6. What are your thoughts and opinions in regards to using Cash data in place of Futures data to calculate the pivot points? Also, I would like to know your thoughts and opinions on using Pit-traded S&P 500 futures contract data to calculate the pivot points to use to trade ES.
7. Is it really difficult to trade on Expiration day? Or is this just another market myth?
8. What is the logical way to calculate Yearly pivot points? I know this question seems like a trick question but, as you all know, Yearly pivot points involve five separate contract months.
Please read the questions very carefully before answering them. I got confused myself. Thank you very much.
Very best regards.
Last edited by searchman; January 25th, 2014 at 10:37 PM.
1. Of course you can trade on rollover day. The daily pivots for the new contract on rollover day should be calculated from the prior day's high, low and settlement price for the new contract. Alternatively you can also calculate them from a backadjusted contract. The backadjusted contract aligns the close of the old contract to the close of the new contract, therefore the closing value for the day prior to rollover day for the backadjusted contract is always identical with the closing value for the new contract. Prior day's high and low may deviate by one or two ticks, but this does not really matter. This leaves you with the following options:
-> Floor pivots: calculate from prior day's regular high, regular low and settlement for the new contract
-> Floor pivots: alternatively calculate from prior day's regular high, regular low and settlement for the backadjusted contract
-> Globex pivots: calculate from prior day's full session high, regular low and settlement for the new contract
-> Globex pivots: alternatively calculate from prior day's full session high, regular low and settlement for the backadjusted contract
2. For weekly pivots the same logic applies. You can easier use the new contract or the backadjusted contract. I personally would prefer the backadjusted contract, if the liquidity of the new contract was still low during the prior week. A continuous contract can be anything including a backadjusted or perpetual contracts. You should not calculate pivots from perpetuals.
3. - 5. Either new contract or backadjusted contract.
6. You can use cash data if the underlying cash market is liquid and publicly quoted.
-> Index futures: You can also use the cash index in conjunction with the cash market hours
-> Currency futures: You can calculate the pivots for the larger FOREX cash market
-> Bond futures: The quotes for the underlying bonds are not comparable, therefore pivots can only be calculated for the futures.
-> Crude oil: The underlying quotes for physical crude are not comparable in terms of grades and locations, also quotes are not easily available to the public (subscription for OMR etc. required)
7. Trading on expiration can be a problem under certain conditions
-> If physical commodities are involved prices in the old contract maybe impacted by shortages, the shorts are occasionally squeezed, in particular if delivery can only be made in a single location which can only be accessed by pipelines (Cushing, Oklahoma).
-> Options expiry may contribute to volatility.
-> However, financial futures such as currency futures do not show any particular exciting behaviour on rollover day.
8. It is easy to calculate yearly pivots for the cash market. As far as futures are involved I would probably calculate them from a perpetual contract to avoid to find levels which are artificially high or low. But I have never used yearly pivots.
The following 2 users say Thank You to Fat Tails for this post:
Hello, Fat Tails.
Thank you very much. Your answer completely clarified the field.
By the way, I am sorry that I could not reply back to your last PM due to futures.io (formerly BMT)'s policy that I can PM only once every 60 minutes.