We have introduced the concept of Pivot Point earlier. Here we will observe some applications of the concept and test whether we can use this method to enter and exit the same day.
Let us look at Tata Steel intraday real time data on price movement from 9.45 am to 11 am on 11.7.2011 (Figure 1) and we are sitting at 11 am and deciding on a strategy whether to go long or short. The prices are Open (O) Rs.593, High (H) Rs.594.25, Low (L) Rs.591.80 and Close (C) Rs.592.50. We take 11 am price as the close price for the time period. Using the Pivot Calculator yields the following Support and Resistance points.
Figure 1
After 11 am the prices started falling and around 12.30 pm the prices fell below the third support S3 at Rs.587.95. Given that there was still 3 hours to go for market close, going long would have been advisable as we observe that the market had given enough opportunity for exit at 1 pm, 1.45 pm, 2.30 pm etc.
| Formula | ||
| R4 | PP + RANGE * 3 C + RANGE * 1.1/2 | 600.20 |
| midpoint | 598.98 | |
| R3 | PP + RANGE * 2 H + 2 * (PP – L) C + RANGE * 1.1/4 | 597.75 |
| midpoint | 596.53 | |
| R2 | PP + RANGE C + RANGE * 1.1/6 | 595.30 |
| midpoint | 594.60 | |
| R1 | 2 * PP – L C + RANGE * 1.1/12 | 593.90 |
| midpoint | 593.38 | |
| PP | (H+L+C)/3 (H+L+O)/3 (H+L+C+O)/4 (H+L+C+C)/4 (H+L+O+O)/4 (H+L)/2 (H+C)/2 (L+C)/2 | 592.85 |
| midpoint | 592.15 | |
| S1 | 2 * PP – H C – RANGE * 1.1/12 | 591.45 |
| midpoint | 590.93 | |
| S2 | PP – RANGE C – RANGE * 1.1/6 | 590.40 |
| midpoint | 589.18 | |
| S3 | PP – RANGE * 2 L – 2 * (H – PP) C – RANGE * 1.1/4 | 587.95 |
| midpoint | 586.73 |
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