There is nothing correct in trading. It is a game of n market participants using n different approaches. The floor pivot was used by floor traders because they did not have calculators and computers. So they relied on information available prior to the session. For the floor pivots you would take the settlement price, not the close. The floor traders calculated their floor pivots using the RTH (floor) session.
Now floor pivots are nothing special. They work as a self-fulfilling prophecy. A gathering point for initiated traders to take the bus back into the valley after having enjoyed the panorama of the peak.
So the question is, which pivots are used by the majority of the traders, or let us say the traders, who make up for most of the volume. Professional traders tend to take the official numbers from the stock exchange, so the correct values for open high and settlement for ES can be found under www.cmegroup.com every day. The values published there refer to the trading session. A trading session is characterized by a common settlement date. Pay attention, there are a number of two-day-sessions around holidays, so you need to calculate the two-day-session pivots (5 days for ES per year). For ES the published high and low is the Globex full session high and low, the settlement would be the weighted average price of all trades during the last 30 seconds of the regular session, so for ES the settlement price is rarely more than 3 ticks off the close.
For bonds and agricultural commodities the settlement price is often a couple of hours earlier than the closing price. So there is a significant difference. I would opt for the settlement price.
For currency futures, however, I would not take the settlement price. The currency futures market is relatively small compared to the FOREX market, so it will follow FOREX anyhow and nobody cares about the settlement time of GLOBEX. The correct close for FOREX would be the New York close at 5 PM Eastern Time.
Practical Application to Trading
You cannot generate the settlement times easily from intraday data. You would need an indicator that "knows" the settlement period of each futures contract, stored in a data base, and calculates the settlement price from tick data by averaging all trades over the settlement period. Therefore all pivot indicators that work with intraday data take the close instead of the settlement price. This is fine for
- index futures (3 ticks off means that the pivots are only 1 tick off)
- currency futures and FOREX (you want the close anyhow)
but it is bad for
- bonds and commodities
If you want better than this, you have two options:
(a) you work (look up correct values on the website and enter them manually into the indicator panel)
(b) you pay for it (pay a decent data feed that delivers daily data with settlement prices)
In case you use Ninjatrader, and you are both lazy and poor, there is a third option:
You can use the free daily Kinetick data. As far as I have seen, it has the settlement price for bonds and commodities (you would need to check this).
Close all your intraday charts and open one daily default chart. Connect to Kinetick Daily Data. Reload the chart data. Your daily data now shows the settlement prices. Disconnect. Connect to your regular data feed. Now open intraday chart and apply the standard NinjaTrader pivots indicator or the SessionPivots indicator in DailyBars mode and you are done.
Last edited by Fat Tails; July 27th, 2010 at 04:48 AM.
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You wrote: For ES the published high and low is the Globex full session high and low
You seem to imply these numbers are used to calculate the floor pivots. I trade with other traders who select the High/Low from the regular trading hours between 9:30 to 4:15 which produce different levels. I would tend to believe that more traders use the RTH High/Low than the full trading day including the Globex part for the High and Low. But again it's not something easy to determine.
You are absolutely right. Many traders use RTH pivots, and also many traders use ETH pivots. The original floor pivots were calculated from the RTH session (of course), so traditionalists may continue to use them.
If you want to know, which ones work better, you would have to put them on your chart and examine price action. I have done this several times and have found, that price reacted to both types of pivots. In the end I decided to use Globex pivots. But this choice is not at all obvious.
If you have time to do the comparison, I would be interested in your conclustions.
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Yes, these levels are correct - except for rounding errors. Note that there are two different forumulae for calculating S3 and S4. The left chart below shows the narrow pivots that you used. The right chart shows the wide pivots.
That explain why one of my friend has different numbers than i have. I must admit, i find all these different methods and calculus a pain in the ass to handle. I never know if what i am using is pertinent.
Fat, would you mind checking this Excel file. I have put my formulas to calculate the daily pivots (rounded to the nearest tick). Could you edit it so that i can compute the narrow pivots too for S3/R3 and S4/R4 ?
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