Magister Pivot Points: Another important tool for successful day trading

Over the years I have always looked for simple and quick ways to calculate support and resistance levels and project likely daily ranges, breakouts etc. One of the most useful tools I developed was what I now refer to as “Magister Pivot Points”.

Magister Pivot point calculations are a variation on some of the classic pivot calculation formulas that you have likely seen in the past that floor traders use in their daily trading activities. Because of the pressures they were under on the floor and the short term nature of their trading they needed something quick, easy and simple to use that was also effective. In stepped the Classic or Standard formula that has been used for decades.

chp1-pivot-point-formulas-graph2

Over time though, as more and more traders used the classic, or standard, pivot calculation formula the less useful it tended to be. Everyone knew it and, as we all know, when everyone knows something it typically loses its effectiveness. Other variations began to appear such as the Camarilla, Woodie, Fibonacci, DeMark, etc. and I am sure there are probably a host of others as well.

Through a long process of trial and error I found the formula that worked best for the type of day trading that I do and that worked best with the various DQ and Cycle indicators that I use. The final result was Magister Pivot Points.

Let’s look at a recent example of them in action (I recommend that you try printing out the following comments or viewing them in a different window so you can have them handy when you click on the chart to see it in full size):

140228_151537_CQG_IC_Chart_EP_-_E-Mini_S&P_500_Active_3_Min_Continuation

3 minute chart of E-mini S&P with Magister Pivots (Click to Enlarge)

As you should be able to see from the 3 minute chart of the S&P e-mini contract above, the Magister support pivots, or zones, are displayed as the two solid green horizontal lines and the resistance pivots, or zones are shown as the two red horizontal lines. Pretty much all of the daily range on Friday, Feb. 28, was contained by these support and resistance levels. And this is not an unusual occurrence. I have found that when I get various DQ indicators setting up around these levels, or CIT cycles coming due, that these Pivot points provide excellent points for entry, exit, or simply risk management.

Notice in the 12:15 to 12:30 time frame above, just before the news came out about Russia potentially invading Ukraine, you had a DQ chart pattern forming that I call a BX cluster. This is represented by the 5 downward pointing blue triangles you see on the chart (those of you who have read my post about George Soros’s 1992 trade in the British Pound should recognize this as the similar cluster pattern that occurred right at the top of that move too). Notice also that you were trading right in the midpoint area of the Resistance zone forecasted by the Magister Pivot calculations between 1863.25 and 1869.25 and also just under a Magister price projection zone (which I will discuss in a later post).

When the bars started turning red, indicating downward momentum developing, prices then traded down below the R1 level, rallied briefly, and then broke down with strong momentum.

Then, at 14:00 CT, we got a DQ indication (the red up arrow) which told us that prices had a 70% chance of bottoming and turning higher soon but we have strong downside momentum that we don’t want to step in front of in case prices start to accelerate lower.

Prices then traded down to the S2 level at 1845.75, and showed a bullish defined momentum divergence (The K line on the stochastic oscillator shown was not as low on the zigzag swing that made the new low as the price low of the previous zigzag swing shown). And this also occurred at another Magister price projection zone (shown in the form of the yellow horizontal dashed lines). At that point, DQ analysis was telling us that this was now a low risk point to try a counter-trend long position that had very low risk given the entry point’s position relative to the S2 pivot. The result was a nearly 17 handle rally into the close.

Another interesting phenomenon I have found with these Pivot calculations is that when you exceed the R2 or S2 levels, come back and test them without exceeding the R1 or S1 levels again, you have about a 65% probability of moving to the next calculated R3 or S3 level (not shown on the chart. On Friday, R3 would have been 1877.75). I have found that knowing this alone often keeps me out of trouble because I have a tendency to like to take counter-trend trades and this fact reminds me that sometimes when markets break out and start to trend that counter-trend trades should either be avoided or kept on a very tight leash. I am still learning this lesson though!

The Magister website will soon have a calculator up so you can just plug in the open, high, low and close of the market you are interested in to get the Magister pivot levels for the next day. For markets we are tracking for trading purposes we will also soon have up daily pivot projections as well.

These Pivot Points are a simple and easy trading tool to use. And also very effective. I don’t trade without them anymore.

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