There are a number of different pivot points, such as woodie and Camarilla. The differences are in the method of calculation. You may want to google Pivot Point calculator and you'll soon see the variations and can find the calculations methods.
If you are calculating futures contracts, it is important that you work with the "settlement" price and not just the close of the session as they can be quite different.
Floor traders did not have access to calculators or handheld devices, so what they needed were simple benchmarks or pivots available right from the start of the session. Those benchmarks were based on the prices that were officially published by the exchange for the prior day, that is open, high, low and close.
(a) typical price as proxy for value: PP = (prior High + prior Low + prior Close)/3.
(b) targets based on yesterday's range: R2 = PP + prior day's range, S2 = PP - prior day's range
Originally, the high, low and close published by the exchange was based on the regular session. This means that you should calculate floor pivots
- for stocks: from the regular high, low and close
- for futures: from the regular high, low and settlement
Floor pivots calculated from extended trading hours or ETH pivots
Meanwhile most of the exchanges publish high, low and close for extended trading hours. I am trading futures, so let us take for example ES.
The regular trading hours for ES are from 5:00 PM Central Time to 4:15 PM Central Time. The settlement takes place around 3:15 PM. The values for High, Low and Settlement published by CME now reflect those contractual trading times. NEVER calculate ETH pivots from a calendar day, that is the time period 0:00 to 23:59. What matters are the time zone and the opening hours of the exchange, where the stuff is traded.
How to choose between ETH and RTH pivots
The historical evolution leaves the trader with the choice to either use full session pivots (ETH) or regular session pivots (RTH). The lazy traders just use the data published by the exchange and use it. Those are always ETH pivots. For stocks there is probably no or little difference between ETH and RTH pivots. But for futures there is.
Regular pivots should be used for instruments that are not traded round the clock, but which have a strong national component, for example
-> US equities, ES, YM, NQ, TF, FDAX, FESX
-> US bonds, ZB, ZN, UB, FGBL, FGBM
Full session pivots should be used for instruments that are traded round the clock
-> FOREX and currency futures
Physical commodities still have a strong floor trader tradition. Therefore you might do better with regular pivots, if you trade CL, GC or Agriculturals. However, all of those contracts are more and more shifting to the electronic trading, the use of full session (ETH) pivots therefore becomes more and more frequent.
I still like to use RTH pivots for crude oil, but many traders have already shifted to ETH pivots.
-> Camarilla pivots (symmetrically distributed around the close)
-> Fibonacci pivots (symmetrically distributed around the floor pivot PP)
-> Jackson Zones (similar to floor pivots, but with symmetrical levels for R1 and S1)
-> Woodie's pivots (pivots built from [Open + High + Low + Close]/4 instead of [High + Low + Close]/3)
The first 3 magic formulae tend to work, where there is no strong tradition of floor pivots, that is in the FOREX markets. I do not see an application for Woodie's pivots. Pivots all rely on self-fulfilling prophecy, and they only work if there are enough disciplese who believe in them.
My personal choice:
-> for stocks, index futures, interests rate futures and physical commodities: RTH pivots (or RTH JacksonZones)
-> for FOREX: ETH JacksonZones (or ETH pivots)
But you need to find out yourself and select a weapon that you can rely on.
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Thanks for the great post. I have used RTH Floor Trader pivots for a while, but you just opened up my world. I particularly like your logic around RTH vs. ETH for instruments that have a "strong national component".
You stated that RTH should be used for US equities and bonds because they don't trade around the clock and they have a national component. It was my understanding that ES, TY, US all trade around the clock so want to clarify that point with you. Are you trying to say that the overnight volumes for these futures are typically a small amount of the total volume for a 24hour period so that they are effectively not really around the clock instruments? Would you also suggest using RTH for EuroDollar 3m INTEREST RATE (NOT forex) futures contracts?
You brought up another fine point in terms of using the settlement price and NOT the close for futures contracts. My follow up question is what do charting packages usually show? If they typically publish the close for futures, do you go to the exchange website for settlements, or is there another source. Once again, appreciate your well thought out post.
Of course ES does trade around the clock (with two interruptions of 15 and 45 minutes), but the overnight volume is not impressive compared to the volume of the regular session.
The average volume for the regular session is close to 1,400 K contracts, for the night session the volume is about 275 K contracts. If you take into account the duration of the night session (15:30) and the duration of the regular session (6:45), during the regular session there are about 200 K contracts traded per hour, while there are about
18 K contracts traded per hour during the night session. Or otherwise put, the liquidity is about 10 times higher during the regular session.
I am not trading EuroDollar futures, so somebody else may respond.
Your question regarding the settlement price: The settlement price cannot be retrieved from intraday data, but it comes with the daily data feed. The charting platform just displays the daily close as is supplied via the data feed. I think that all quality charting platforms will show the settlement price for futures, if you connect them to the right datafeed. DTN/IQ, E-Signal, CQG, Kinetick all supply settlement prices.
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