DaysAgo

Specifies the number of days ago on which the Floor Traders Pivots calculations are based on, whereas a value of 0 looks at today's high, low, close or a value of 1 looks at yesterday's high, low, close.

R1

Variable that receives the value of R1.

R2

Variable that receives the value of R2.

Returns

AlchemyFTP returns the value for P.  The value for R1 is passed by reference back to the variable R1.  The value for R2 is passed by reference back to the variable R2.  The value for S1 is passed by reference back to the variable S1.  The value for S2 is passed by reference back to the variable S2.

Usage

Floor traders pivot points are a well-known technique used by floor traders (locals) and market makers in the trading pits to calculate intraday support and resistance points.  This technique has been around for decades, yet is still much in use today.  Before the advent of computers and sophisticated analysis techniques, floor traders used a set of calculations to determine key support and resistance points in the market.  They calculated these points from the previous days open, high, low and close.  The floor traders today still use these points in their intraday trading. Since the floor traders in the pits are using these points for support and resistance, it just makes good sense to keep track of these key points and be aware of them if you are doing any type of intraday trading.

For any market, there is an equilibrium point around which trading activity occurs.  In the absence of large numbers of new buyers or sellers, this point serves as the pivot or focal point for the floor traders (locals) and the market makers as they adjust their bids and offers.  When prices move away from the pivot, there are zones of support and resistance that can be derived from the established value area in that particular market. Penetration of these zones leads to perceived changes in valuation and usually results in the entry of new players and orders into the market.

The Alchemy Floor Traders Pivot Points consist of the following:

Second Resistance Point   R2

First Resistance Point        R1

Pivot Point                            P

First Support Point              S1

Second Support Point         S2

Trading for the day will usually remain between the first support and resistance points as the floor traders make their markets.  If either of these first points are penetrated, off-floor traders are attracted to the market.  The range of trading has now expanded and if a second support or resistance point is broken, then even longer-term traders will be attracted into the market.

Knowledge of the levels at which different types of traders are likely to enter the market can assist in determining when a shift in valuation by the locals has occurred.  This is especially useful when there is little outside influence on the market and the local floor traders dominate trading.  As long as no significant market news has occurred between yesterday’s close and today’s opening, the local floor traders and market makers tend to move the market between the pivot point (P) and the first band of support (S1) and resistance (R1).  If these first levels are broken, look for the market to test the level of support (S2) or resistance (R2).

Combining the Alchemy Floor Traders Pivot Points with other indicators such as overbought/oversold indicators is easy and helpful. Several examples are: if price moves up to the first resistance level (R1) and one or more of your other indicators have moved into overbought territory, the confirmation provided can create a higher confidence sell signal.  However, if price reaches the first resistance level (R1) and the other indicators are in a bullish mode, you could make a higher confidence buy decision with an upside target of the second resistance level (R2).  It is also possible to combine the Alchemy Floor Traders Pivot Points with the Alchemy Support and Resistance Pivot Point indicator to give you additional support and resistance points. 

Knowing where the floor traders levels of support and resistance are located can give you a good framework for what is going on in the pits and should help you in your intraday buy and sell decisions.  

Home    |    Trading Alchemy Manual    |    Alchemy Functions Index