It is not self explaining. Behind is the concept of the pivot range. The best source to understand the pivot range, is probably the book "The Logical Trader" by Mark Fisher.
Pivots were/are a tool of floor traders. High, low and close of yesterday are known prior to the start of today's session, so the floor traders had written down these values. The main pivot is just the arithmetic average of high, low and close. So traders were prepared when price approached it.
In that way the main pivot PP = (high + low + close)/3 was a precursor of the VWAP or POC, all of them representing yesterday's value. The pivot is still used because of its extraordinary simplicity, when compared to other options.
For calculating the pivot range you need yesterday's midline (high + low)/2 and then mirror it around the main pivot PP.
The midline and the pivot range line (PRL) are the borders of the pivot range.
Other than being a value zone, the pivot range has an interesting property. It can be narrow or wide.
Narrow pivot range: This means that today's pivot is close to yesterday's midline, or otherwise put that yesterday closed near or at the mideline. If yesterday was a balancing day the pivot range is narrow, which increases the odds for a nice trending day, if volatility increases.
Wide pivot range: This indicates that yesterday's close was near the upper or lower end of the daily range. This increases the odds that today will see balancing prices testing the value zone, which was newly established yesterday.
All this is simple, but quite effective.
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Although I have been using weekly and daily pivot levels in my trading for a while I was not aware of these other levels for measuring price action. Thanks for a very clear explanation of the use of them Fat Tails !
Also quite happy to hear that they were not immediately obvious, as I could only think of Prior/Previous Low as mentioned before.
Shorted EUR/USD back down into the weekly PRL to PP area earlier today, so quite happy with the interpretation.
Notice also that since falling through it in asia session, the bottom side (PW-Mid) has acted as resistance.
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