How to Build a Simple Pivot-based Trading System
A pivot based trading system defines a focus of trading action, the 'pivot point' and places support and resistance lines around that point where trades can are to be entered and, perhaps, exited.
Calculation of the pivot point can be quite intricate but using yesterday's close is a simple place to start.
For support and resistance there are again a dizzingy array of choices, but the volatility over the last 10 days is another easy place to begin. So...
- Support is: pivot - volatility(10), and
- Resistance is: pivot + volatility(10)
- Buy at support, and
- Sell at resistance
- Exit longs at the highest close of the last 3 days, and
- Exit shorts at the lowest close of the last 3 days
- 200/285, 70%, avg 7.0 pts, sd 26.0 pts, t 4.4
All it lacks are stops. Which are a problem...but may only mean that pivot points are better indicator foundations than trading system foundations. Note also how well the simple choice worked at each decision point in designing the system.