Using Floor Trader Pivots
How to use floor trader pivots to improve trade entry and targets
Floor Trader Pivots
Let’s talk floor trader pivots…
So-called because the traders in the pit would have these simple levels jotted down and use them to structure trades. The main levels consisted of a pivot point. Then three levels of support and resistance.
R1, R2, and R3
S1, S2, and S3
If you care, the formula took into account the three main levels from yesterday’s trading day. The prior high, low and close.
Pivot Point = (High + Low + Close) / 3
R1 = (2 x Pivot) – Low
R2 = Pivot + High – Low
R3 = High + 2 x (Pivot – Low)
S1 = (2 x Pivot) – High
S2 = Pivot – High + Low
S3 = Low – 2 x (High – Pivot)
(Of course, nowadays pretty much all charting platforms have these pre-set as an indicator.)
All very nice Mark, but how can they be used to trade?
#1 Trade Entry
Waiting until price extends away from the open and tests one of these pivots.
Check out this example on the S&P 500 (I’ve used the SPY ETF so we can see the regular trading hours session, a decent equivalent to the old pit session)
Price is very rotational and non-directional, it finally breaks free of the VWAP and extends to the downside, hitting and reversing at the Pivot Point.
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#2 Trade Target
Price was constrained pretty nicely between R1 and R2 all morning (US time) breakout pullback buyers could have used R3 as a reasonable price target.
Especially useful if you have no real key level to target, the pivots can help you sit on your hands
and hold the trade.
If you took the ORB trade to the short side, S2 and S3 made nice trade targets.
Another good example of a price target for your trade if you are in ‘no-mans land’.
#3 Trade Filters
Another potential way to use pivots is as a filter.
Whilst price is above the pivot point you stay long, buying dips, pullback rotations, support tests etc.
Whilst price is below you align short.
My least favourite way to use them if I’m honest, but it’s an option!
Now you’re up to speed on floor pivots, all you need is a pit jacket, a stack of trading slips, and the ability to shout over everyone else to get your orders done….