Trading is a game of repetitions.

Traders that can consistently trade the

best repetitions are those that have mastered the markets.

TYPES OF MARKET DAYS

There are six types of market days that we will cover

The Trend Day

The most aggressive type of market day

On a bullish Trend Day, the open usually marks the day's low, while the
close usually marks the day's high, with a few ticks of tolerance in either
direction.

On a bearish Trend Day, the open will usually mark the day's high, while
the market will usually close near the session's low.

Initiative buying or selling is the culprit on this type of market day

Price conviction is strongest during a Trend Day

The Trend Day is usually preceded by a quiet day of market activity,

which is usually a day with a small range of movement.

Coincidentally, this type of market behavior will usually follow a Trend

Day as well.

Double-Distribution Trend Day

While this day is a trending day, it in no way has the confidence or

conviction of a Trend Day characterized by its indecisive nature at the
outset of the session

The market will usually open the session in a quiet manner, trading within
a fairly tight range for the first hour or two of the session, thereby creating
an initial balance that is narrow
After the initial balance of the Double-Distribution Trend Day has been
defined, price will break out from the range and auction toward new value,
where it will form a second distribution of price

Once the market finds new value, it then builds out another range before
ending the day.

The ranges formed at both the beginning and end of the day is where the
term "double-distribution" comes from

The initial balance is the base for any day's trading and is extremely
important to the Double-Distribution Trend Day

A narrow initial balance is easily broken, while a wide initial balance is

harder to break
The Typical Day

Characterized by a wide initial balance that is established at the outset of

the day

On this type of day, price rallies or drops sharply to begin the session and
moves far enough away from value to entice responsive participants to
enter the market

The market then trades quietly within the day's extremes the remainder of
the session.

Wide base during the first hour of the market will likely mean that the
day's extremes will also remain intact, or unbroken.
Expanded Typical Day

Similar to the Typical Day in that it usually begins the session with early
directional conviction. However, price movement at the open is not as
strong as that seen during a Typical Day

The initial balance, while wider than that of a Double Distribution Trend
Day, is not as wide as that of the Typical Day, which leaves it susceptible
to a violation later in the session.

Eventually, one of the day's extremes is violated and price movement is

seen in the direction of the break, which is usually caused by initiative
buying or selling behavior

During an Expanded Typical Day, both the upper and lower boundaries of
the initial balance are susceptible to violations.

On any given day, you will see one, or both, of the boundaries violated, as
buyers and sellers attempt to push price toward their own perceived levels
of value.
The Trading Range Day

This type of day occurs when both buyers and sellers are actively
auctioning price back and forth within the day's range, which is usually
established by the day's initial balance.

On this day, the initial balance is about as wide as that of a Typical Day,
but instead of quietly trading within these two extremes throughout the
day, buyers and sellers are actively pushing price back and forth

This type of day is basically like a game of tennis.

Sideways Days

There is no volleying of the proverbial tennis ball between buyers and

sellers.

On this type of day, price is stagnant, as both buyers and sellers refrain
from trading. This type of session usually occurs ahead of the release of a
major economic report or news event, or in advance of a trading holiday

The initial balance is rather narrow, which at first indicates the potential
for a Double-Distribution Trend Day. However, the initiative buying or
selling required for a Double-Distribution Trend Day never enters the
fray, which leaves the market terribly quiet the rest of the session.

You should only trade when the circumstances are the most
favorable for a profitable outcome

Market Profile

Bell-shaped profile will give you an accurate picture of the days’ time and
price relationship, providing you with key levels of interest for the current
session and future sessions.

While the structure offers an abundance of information, the two areas that
stand out are the Point of Control and the Value Area.

The Point of Control (POC) is the price where the most trading activity
occurred during the day, as represented by the longest line of TPOs nearest
to the center of the entire structure.

This price is significant because it represents the fairest price to both

buyers and sellers.

Value Area is important because it illustrates where 70 percent of the

trading activity occurred during the day.
The top and bottom of the value area range can tell you where buyers and
sellers entered the market when they perceived price to be away from fair
value.

Traditionally, the upper boundary of the value area is called the Value
Area High (VAH), and the lower boundary is called the Value Area Low
(VAL).

Why do we want to use a prior day's information for the following session?
Isn't the information old news by then?

By understanding where the market perceived value to be fairest in the

prior session, we are able to use this information to help us determine price
valuation for the current session.

Using the prior day's information to generate the point of control for the
next day gave us a way to measure when price was over and undervalued.

Responsive behavior will move price back toward a perceived area of

value, but does not have the conviction to influence price on a larger scale.

On the other hand, initiative behavior has much more conviction and
confidence behind its actions, which provides the ability to influence price
movement significantly.

Technically, responsive buying and initiative selling occur below value,

while responsive selling and initiative buying occur above value.

The upper boundary of the value area (VAH) is where responsive sellers
and initiative buyers hang out.

On the flip side, the bottom of the value area (VAL) is where responsive
buyers and initiative sellers will look to put money to work.
If price rallies early in the session and begins to show signs of weakness at
or above the VAH, the market is likely to see a surge of responsive selling
pressure.

The use of the value area or the point of control as support and resistance is
significant because these levels are based on the actions of actual market
participants.

THE OPEN IN RELATION TO VALUE AND RANGE

Specifically, the open in relation to range and value can help you forecast
potential price behavior for the session.

A day that opens within value and within the prior day's price range will
have a markedly different conviction and result than a day that opens out
of value and out of the prior day's price range.

The first type of opening relationship is an open that occurs within the
prior day's price range and within the prior day's value area. An open that
occurs in range and in value indicates market sentiment from the prior day
has not changed and the market is currently in balance.

It usually leads to a quiet trading range session.

A Typical Day, Trading Range Day, or Sideways Day will usually develop
from this type of opening relationship

The second type of opening relationship is an open that occurs outside of

the prior day's value area, but within the prior day's range.
An open that occurs in range, but out of value, indicates that market
sentiment has changed slightly, which offers more risk and opportunity.

However, in order for greater directional conviction to be seen, the market

must break free from the prior day's range and accept new value.

If this occurs, a Trend Day, Double- Distribution Trend Day, or Expanded

Typical Day scenario will likely develop.

The last type of opening relationship is an open that occurs out of the prior
day's range and out of the prior day's value area.

On this type of day, the market has opened out of balance, indicating that
market sentiment has clearly changed from the prior day. If the market
does not fall back within the prior day's range, this means the market is
likely accepting new value and further range extension will be seen

A Trend Day or Double-Distribution Trend Day usually arises from this

relationship.

If price pushes back within the prior day's range, this means that
responsive market participants were able to push price back toward prior
value, indicating a failed breakout attempt, thereby leading to a Typical
Day, Expanded Typical Day, or Trading Range Day.

Simply paying attention to important price-to-pivot relationships can

immensely improve your trading.

VALUE AREA RELATIONSHIPS

The value area is important because it represents where 70 percent of the

trading activity occurred in a day

There are seven types of value area relationships that should be considered
when analyzing the current strength and attempted direction of the market:
Higher Value
Overlapping Higher Value
Lower Value
Overlapping Lower Value
Unchanged Value
Outside Value
Inside Value

Both following through and failing to follow through on its directional bias
can tell you a lot about the market's current state, which then helps you
determine which types of trades are likely to present themselves.

Higher Value relationship

It occurs when the current day's value area is completely higher than the
prior day's value area. Therefore, today's value area low is higher than
yesterday's value area high.

The most bullish value area relationship,

Any pull-back should be viewed as a buying opportunity, especially if a

string of higher value days have occurred in a row.
If the day's open does not coincide with typical higher value behavior, a
failure to achieve the day's directional bias could be seen, which would
then shift your focus to a bearish scenario.

When this relationship occurs, the market should open the session
anywhere above the value area low in order to remain bullishly optimistic.

To every scenario, there is acceptance or rejection

At times, it becomes quite clear that despite the formation of certain value
area relationships, price can take a different path.

I watch the opening print closely the next day. If the market opens the
session below the day's value area, I will be inclined to sell any rally to the
VAL or POC

While powerful, these relationships offer guidelines that should be proved

or disproved by the market's actions.

Plan the trade. Trade the plan

Overlapping Higher Value relationship

This occurs when the current day's value area is higher than the prior day's
value area, but today's value area low is lower than yesterday's value area
high

This is a moderately bullish scenario, which is a step below the Higher

Value relationship.

An overlapping higher value day indicates market participants were able to

push price to higher valuation, but only marginally.

This relationship suggests a bullish bias, but indicates that strength is

beginning to waver leaves the door open for a potential decline
This relationship can occur in a trading range market, in the beginning of a
newly-developing trend, in the middle of an existing trend, or at the end of
a trend.

Determining where in a trend this relationship has formed can help you
forecast price direction.

When an Overlapping Higher Value relationship develops, the opening

price becomes an integral part of how price movement will play out.

You typically want to see price open above the day's value area high for a
bullish outcome, or below the day's value area low for a bearish outcome.

If the market gaps above VAH to begin the day, I will look to buy any
pull-back to the VAH or the day's POC, with my target set to a new high
within the current trend

Lower Value relationship

It offers the most bearish directional bias

This relationship is characterized by the current day's value area being

completely lower than the prior day's value area. Therefore, today's value
area high is lower than yesterday's value area low

When this occurs, you will look to position yourself on the short side of the
market, especially if a string of lower value days has occurred in a row.

This would indicate that the market is currently in a downtrend, which

means every pull-back should be viewed as a selling opportunity

Allow the market to prove or disprove the directional bias.

The open in relation to value will help you determine if the market is
rejecting or accepting the anticipated directional bias.
Overlapping Lower Value relationship

This occurs when the current day's value area is lower than the prior day's
value area, but today's value area high is higher than yesterday's value area
low

This value area relationship indicates that sellers were able to push price to
lower valuation, but only marginally, which paves the way to a potential
buyer takeover.

Sellers were able to push price lower, but do not have the conviction of a
Lower Value relationship day.

On this type of session, you will typically look to position yourself on the
short side of the market, but will also take longs if the right opportunities
present themselves.

If this type of value area day occurs at the end of a downtrend; for
example, sellers may have exhausted their power to push price lower,
which sets the stage for a potential buyer takeover and a likely change in
trend.
Unchanged Value relationship

It occurs when the current day's value area is virtually unchanged from the
prior session

This type of day indicates that buyers and sellers are happy with the trade
facilitation being conducted in this area and are satisfied with current price
and value.

When this type of value area relationship occurs two or three days in a
row, the implication is the market is on the verge of a big breakout
opportunity.

The second day of an Unchanged Value relationship usually leads to

trading range behavior, three consecutive days of this behavior will usually
result in a breakout opportunity

Outside Value relationship

This occurs when the current day's value area completely engulfs the prior
day's value area.

When an outside day relationship occurs, you are more likely to see a
Trading Range, Typical, or Sideways Day,

This type of relationship day has unbiased directional conviction, but

where the market closes the prior session can tip you off to future price
movement

If price closes at the upper extreme of this day, a hypothetical victory has
been achieved by buyers, which could lead to a bullish outcome in the
upcoming session.

Noticing that the current day's value area completely engulfs the prior
day's value area gives you a significant edge in your trading.
This relationship automatically tells you to prepare for a Trading Range
session, and not to expect a breakout scenario

Inside Value relationship

It occurs when the current day's value area is completely engulfed by the
prior day's value area.

Unlike the outside value day when market participants are happily trading
within a range, the inside day suggests the market was in balance, but is
now on the verge of a big breakout opportunity, as market participants will
likely seek new value

On a day when an inside value relationship appears, you are more likely to
see an out of range and value opening relationship, as the market will
usually open the day with a bang.

The Inside Value relationship can trigger some of the biggest breakouts
the market can offer. It pays to know when this relationship has formed.

The Inside Value relationship is usually a precursor to the out of value and
range opening relationship

Of course, the inside day setup is not fool proof and does not work
perfectly every time, but understanding the relationship and its
implications will keep you prepared for every potential outcome
VALUE AREA WIDTH

The width of the value area can be a big determining factor on price
movement if the range is abnormally wide or narrow

If today's value area is extremely wide due to yesterday's range of

movement, this is an indication that today's market will be rather quiet,
leading to either a Typical, Trading Range, or Sideways Day.

If the width of the value area is wide, you will usually look to trade within
the extremes of the initial balance, as these will likely hold throughout the
session

Conversely, if the width of the value area is extremely narrow, this is an

indication that the prior day's range of price activity was small, which can
be the result of a Trading range or Sideways Day.
When this occurs, you will typically prepare for a Trend, Double-
Distribution Trend, or Expanded Typical Day, as a breakout from the prior
day's range will likely occur

In this instance, the outer boundaries of the initial balance may not hold
throughout the session.

Instead, market participants will likely overwhelm one or both sides of the
initial balance, leading to range extension and one of the high-range day
types

VIRGIN MONEY ZONE LEVELS

A Money Zone level that was never touched during its session of origin is
called a virgin Money Zone level, which can also be known as naked
levels.

These levels have special significance because the market will typically
see these levels as it does an unfilled gap that must be filled at a later point
in time.

Virgin Money Zone levels will usually attract price during a later session,
serving as a sort of magnet to price.

PIVOT TREND ANALYSIS

Buy at support in an uptrend and sell at resistance in a downtrend.
Person filters all pivots except S1, R2, and the central pivot point when the
market is in an uptrend. In a downtrend, all pivots are filtered except Rl,
S2, and the central pivot point.

If the market is trending higher, you will look to buy at support at either S1
or the central pivot range with your target set to a new high at either R1 or
R2.
Likewise, if the market is trending lower, you will look to sell at resistance
at either Rl or the central pivot range with your target set to a new low at
either S1 or S2.

It takes a lot of conviction to break a trend and push prices in the other
direction, which means if you are able to identify the change in trend early
enough, you can profit from a very enthusiastic price move, which can last
a day, or even weeks.

Once a severe breach occurs through the first layer of the pivots, you
typically see a shift of the trend toward the opposite extreme. That is, a
bullish trend becomes a bearish trend, and a bearish trend becomes a
bullish trend.

Two key buying or selling zones, Sl and the central pivot range in an
uptrend, and R1 and the central pivot range in a downtrend.

THE BREAKAWAY PLAY

When the market has formed a low-range day in the prior session, the
pivots are likely to be tight, or narrow.

Narrow pivots foster breakout and trending sessions.

If the market opens the session with a gap that is beyond the prior day's
price range and beyond the first layer of the indicator, the chances of
reaching pivots beyond the second layer of the indicator increase
dramatically.

Price opened the day with a gap that occurred beyond the prior day's price
range and above Rl resistance.

When this occurs, I study price behavior very closely in order to determine
if the pivot that was surpassed via the gap will hold. If the pivot holds as
support, you will look to enter the market long with your sights set on R3
or R4 as the target.

The third and fourth layers are 30 percent more likely to be tested when
price gaps beyond the first layer of the indicator.

When trading the Breakaway Play using the Floor Pivots, I typically like to
see the gap occur beyond the prior day's range and value, preferably just
beyond the first layer of the indicator. In addition, the gap should occur no
farther than the second layer of the pivots.

TWO-DAY PIVOT RANGE RELATIONSHIPS

Understanding how the current central pivot range relates to a prior day's
CPR will go a long way toward understanding current market behavior and
future price movement.

Where the market closes in relation to the pivot range gives you an initial
directional bias for the following session.

The next day's opening price will either confirm or reject this bias

Higher Value relationship

Current day's pivot range is completely higher than the prior day's pivot
range
The most bullish relationship of the seven two-day combinations

Initial directional bias will be bullish. However, how the market opens the
day will either confirm or reject this initial bias.

If the market opens the day anywhere above the bottom of the pivot range,
you will look to buy a pull-back to the range ahead of a move to new
highs.

This is especially the case if price opens above the top of the range.

As long as the market opens the following day above the bottom of the
pivot range, but preferably above the top of the range, any pull-back to the
range should be seen as a buying opportunity,

Overlapping Higher Value relationship

This offers a moderately bullish outlook for the upcoming session.

The top of the range is higher than the top of yesterday's range, but the
bottom of the range is lower than the top of yesterday's range.

The same closing and opening price dynamics are in effect for this
relationship as well.

Lower Value relationship

It occurs when the current day's pivot range is completely lower than the
prior session's range.

This is the most bearish two-day relationship and typically leads to further
weakness should the current day's opening price confirm the directional
bias.
If price opens the session below the central pivot range, you will look to
sell any pull-back to the range ahead of a drop to new lows within the
current trend.

If price opens the following session below the top of the pivot range, but
preferably below the bottom of the range, any pull-back to the range
should be a selling opportunity

It must be reiterated, however, that just because a two-day relationship

implies a certain behavior in price, this bias must be confirmed by the
opening print.

While a Lower Value relationship is the most bearish two-day relationship,

perhaps the biggest rallies occur when the opening print rejects the original
bias.

Overlapping Lower Value relationship

The current day's bottom central pivot is lower than the bottom of the prior
day's range, but the top of the current day's range is higher than the bottom
of the prior day's range.

It indicates a moderately bearish outlook for the forthcoming session.

If price opens within or below the pivot range, price should continue to
auction lower. Any pull-back to the range should be seen as a selling
opportunity.

The two-day Unchanged Value relationship

The current pivot range is virtually unchanged from the prior day's range.

Of the seven two-day relationships, this is the only one that can project two
very different outcomes, posing a bit of a dichotomy.
On the one hand, a two-day neutral pivot range indicates that the market is
satisfied with the facilitation of trade within the current range.

When this occurs, the market will trade quietly within the boundaries of
the existing two or three day trading range.

On the other hand, however, a two-day unchanged pivot range relationship

can indicate the market is on the verge of a major breakout opportunity,
similar to when the market has formed two, or more, points of control that
are unchanged.

The outcome is typically driven by the opening print of the current session

If the market opens the day near the prior session's closing price and well
within the prior day's range, the market will likely lack the conviction
necessary for a breakout attempt.

If the opening print occurs beyond the prior day's price range, or very close
to an extreme, the chances are good that a breakout opportunity may lie
ahead.

The Outside Value relationship

This happens when the current day's pivot range completely engulfs the
prior day's range.

This two-day relationship typically implies sideways or trading range

activity, as the market is happy with the current facilitation of trade in the
current price range.

A wide range will usually indicate trading range behavior

This relationship is much more telling if the current day's pivot range is
significantly wider than the prior day's range. Otherwise, merely engulfing
the prior day's range without the necessary width may lead to the same
result, but with less accuracy.
The Inside Value relationship

It occurs when the current day's pivot range is completely inside the prior
day's range.

This two-day relationship typically implies a breakout opportunity for the

current session, as the market is likely winding up ahead of a breakout
attempt.

If the market opens the day beyond the prior day's price range, there is a
very good chance that initiative participants will enter the market with
conviction in order to push price to new value

If the market opens the day within the prior day's price range, a breakout
opportunity could still be had, but with much less conviction.

This two-day relationship doesn't occur frequently

On the days when it develops, usually lead to major trending sessions

If the prior day's pivot range is noticeably wider than the inside day pivot
range, you are more likely to see a breakout opportunity, especially if the
current day's pivot range is very narrow.

If both pivot ranges are virtually the same width, but technically meet the
inside requirement, the rate of success will noticeably drop.
PIVOT WIDTH FORECASTING

Since the prior day's trading activity leads to the creation of today's pivots,
it is extremely important to understand how the market behaved in the
prior day in order to forecast what may occur in the upcoming session.

More specifically, if the market experienced a wide range of movement in

the prior session, the pivots for the following day will likely be wider than
normal, which usually leads to a Typical Day, Trading Range Day, or
Sideways Day scenario.

Conversely, if the market experiences a very quiet trading day in the prior
session, the pivots for the following day are likely to be unusually tight, or
narrow, which typically leads to a Trend Day, Double-Distribution Trend
Day, or Extended Typical Day scenario.

Pivot Width is the distance between the top central pivot and the bottom
central pivot (TC - BC).
Pivot width analysis works best when the range of movement is distinctly
high or low, thereby creating unusually wide or narrow pivots

If the pivot width is not distinctly wide or narrow, it becomes very difficult
to predict potential trading behavior with any degree of certainty for the
following session.

An unusually narrow pivot range usually indicates the market is primed for
an explosive breakout opportunity.

A tight central pivot range can be dynamite. You want to be aware

when a day has the potential to start off with a bang.

A day that has a wide range of movement, like a Trend Day, will lead to
the creation of an abnormally wide pivot range for the following session.

In this instance, you typically see a quieter atmosphere in the market, as

dictated by the wide-set pivot range.

Sometimes, a wide-set pivot range leads to nice trading range behavior that
allows you to pick off quick intraday swings in the market, much like the
Trading Range Day

The key to trading a day when the centrals are wide is to identify the day's
initial balance after the first hour of trading.

If the initial balance has a wide enough width, you are likely to see trading
range behavior within the high and low of the first sixty minutes of the
day.

If the initial balance coincides with key pivot levels, you have highly
confirmed support and resistance levels that offer great opportunities for
short-term bounces
The market has a much better chance to reach pivots beyond the second
layer of the Floor Pivots indicator if the central pivot range is unusually
narrow due to a low-range trading day in the prior session.

Conversely, a market is less likely to reach pivots beyond the second layer
of the indicator if the central pivot range is unusually wide due to a high-
range trading day in the prior session.

PIVOT RANGE TREND ANALYSIS

"Buy the dips, and sell the rips."

Buying the dips means buying the pull-backs within an uptrend, while
selling the rips means selling (or shorting) the rallies within a downtrend.

One of the best ways to buy and sell pull-backs in a trend is to play the
bounces off the central pivot range, which is the method many
professionals use.
A strong trend can usually be gauged by how price remains above the
bottom central pivot (BC) while in an uptrend, and below the top central
pivot (TC) while in a downtrend.

Once price violates this paradigm by closing beyond the range for the day,
you see either a change in trend or a trading range market develop.

Pull-back opportunities usually occur early in the session, with follow-

through occurring the rest of the day.

Any pull-back to the range early in the morning is a buying or selling

opportunity depending on the direction of the trend.

Once in the trade, the goal is to either ride the trade to a prior area of
support or resistance, or to a new high or low within the trend.
THE MAGNET TRADE

The central pivot range can have an amazing magnetic effect on price that
can lead to a high percentage fill of the morning gap.

If price opens the day with a gap and the centrals are back near the prior
day's close, you typically see a fill of the gap a high percentage of the time,
given the right circumstances. I call this the Magnet Trade

Remember, the central pivot point is reached 63 percent of the time at

some point during the day. When the market gaps at the open, the trade
inherently has a 63 percent chance of being a winner.

Gaps that are too large don't tend to fill as easily as those that are moderate
in size.

Pivot range placement should be at, or very near, the prior day's closing
price.
If the range is too close to price, however, it could hinder the market's
ability to fill the gap.

Don’t wait all day for a gap to fill, because the longer the trade takes, the
more unlikely it is to fill.

Gap fills in general, seem to work best during earnings season,

If price gaps up to Rl resistance, or down to S1 support, these pivots can

serve as a barrier to a breakaway trade, which leads to a higher percentage
of filled gaps.

A gap down requires much more confirmation, conviction, and volume in

order to fill the gap on most occasions.

A Flight Plan for taking the next session trades

Keep in mind that I've combined each layer so that LI means both S1 and
R1.
L1, the first layer refers to S1/R1; the second layer refers to S2/ R2, and so
on
(See the table).
First, the central pivot was reached 63 percent of the time at some point
during the day.

I only used the central pivot for my data collection, not the pivot range (BC
and TC).

Many times price would test either BC or TC and would simply reverse,
which caused the central pivot not to be reached.

The first layer of the indicator (R1 and S1) was reached 73.3 percent of the
time. This is in line with our theory from Chapter 1 that traders like to test
the first layer of support or resistance early in the day to see what type of
market day it may become.

This percentage is so high that it allows us to set profit targets at either Sl

or R1 when we take positions

If we get a breakout through the top of the centrals early in the session, we
can set our targets to R1 since we can feel confident that this layer of the
indicator will be reached a high percentage of the time

The next chunk of data I gathered were closes beyond pivots. That is, once
a pivot was reached, where did price close. See the table below.

Looking at the table above shows that after price reaches the first layer of
the indicator 73.3 percent of the time, it closes beyond this layer only 46.6
percent of the time.
This means that more than half the time (53-4%) after reaching L1, price
will close within S1 and RI.

Each layer beyond L1 shows a clear half-life, as the percentage of closes

beyond each additional level is reduced by half.

Moreover, a full 36.9 percent of the 46.6 percent of closers that fell beyond
L1 closed below R3.

To put it more simply, 79.2 percent of the closings that occurred beyond
L1 closed below L3 and L4.

This means that four out of every five times that price closes beyond L1, it
will close between L1 and L3. This is important to remember.

The percentage of the time the Central Pivot Forecast worked out.

The percentage of the time an open above the central pivot meant a close
above the pivot, and the number of times an open below the pivot would
mean a close below it.

Any open above the central pivot would mean having a bullish bias, and
any opening below it would mean having a bearish bias. See the results
below.

What these numbers do tell us is that the Central Pivot Forecast will work
a little over 50 percent of the time, which can still be statistically
significant when used correctly.
We know that the central pivot is reached 63 percent of the time at some
point during the day. Well, what happens the other 37 percent of the time
when the central pivot is not reached?

Days when the central pivot is not reached are usually trending days in the
market.

Every statistical category increases in percentage beyond Ll. This means

that touches at pivot levels beyond L1, and closes beyond them all increase
significantly due to the trending nature of the market. Interestingly,
touches at R1 and S1 decrease from the stellar 73.3 percent clip.

See the table below.

On these days , it is much more prudent to hold targets at the third layer of
the indicator (R:3 or S3) instead of just L1 or L2.

The percentages also increased dramatically when measuring closures

beyond key pivot levels.

The percentage of closures beyond L1 (but below L2) barely increased by

just three percentage points, but closures above L2, L3, and L4 all doubled.
This indicates that not only is the market trending steadily in one direction,
but it also is closing at or near the extremes of the move.

On many of the days where the central pivot is not touched, you see a gap
beyond the central pivot, and oftentimes beyond L1 (thus the reason its
percentage of touches dropped from 73.3% to 67.2%).

If the market gaps beyond these two levels, and they hold on a retest, you
typically see steady movement in the direction of the gap.

The table below shows that days that do not test the central pivot make up
the vast majority of touches at pivots and closures beyond pivots.

A hefty 70 percent of closures that occurred beyond L2 (but within L3)

occurred when the central pivot was not tested.

That figure increases to 90.9 percent and 80 percent when calculating

closures beyond L3 and L4. Given this information, we know that when
the central pivot is not tested during the day, there is a 73.8 percent chance
that the market will close beyond the first layer of the indicator, S1 or RI.
This means that on days when the market zooms through the first layer of
pivots, with total disregard for the central pivot, three out of four days will
result in a close beyond S1 or RI. This is a significant advantage.

The Abbreviated Version:

1. This study was conducted on intraday data ranging from November

2008 through June 2009 on the Mini-Sized Dow futures contract.

2. The central pivot is reached 63 percent of the time at some point during
the day.

3. L1 was reached 73.3 percent of the time, as traders want to test the first
level of support or resistance on most days. Setting profit targets at this
layer is prudent on most sessions.

4. Fifty-three percent of the time the market will open above the central
pivot and close above it; 48.8 percent of the time the market open below
the central pivot and close below it.

5. Price closed within RI and S1 53.4 percent of the time; only 46.6 percent
of the time will it close outside this range.

6. Of the times that price actually closed outside R1 and S1, 79.2 percent
of these cases closed below R3 and above S3.

7. Once a pivot is reached, the chances of reaching the next pivot

significantly reduces by half.

8. You usually see trending movement beyond L2 on the days when the
central pivot point is not touched.

9. When the central pivot is not touched, the instances of touches beyond
L1 increase significantly, doubling in most cases.
10. When the central pivot is not touched, the instances of closures beyond
L1 increase significantly, more than doubling in every case.

11. When the central pivot is not touched, touches at L1 and closures
beyond this level decrease, signifying an extended move beyond this layer.

12. Of the touches that occurred beyond L1, 61.9 percent of the L2 touches
occurred when the central pivot was not touched on the day. Likewise,
72.4 percent of the tests at L3, and 77.8 percent of the touches at L4
occurred when the central pivot was not reached.

13. Of the closures that occurred beyond L1, 70 percent of closures beyond
L2 (but below L3) occurred when the central pivot was not touched on the
day. Likewise, 90.9 percent of the closures beyond L3 (but below L4) and
80 percent of the closures beyond L4 occurred when the central pivot was
not reached.

14. Touches of L1 significantly dropped on the days when the central pivot
was not touched, falling to 33.9 percent (down from 73.3 percent). This
indicates the market is gapping past L1 on most occasions and continuing
to push toward higher pivot levels.

15. Most importantly, on days when the central pivot is not tested, there is
a 73.8 percent chance that the market will close beyond L1. This is up
from the original 46.6 percent.