Window Oscillators and Overlay Indicators
■ (^) Horizontally based overlays
■ (^) Algorithmically based overlays
Price interacts with these overlays, finding support and resistance. The best
forms of support and resistance are resistive and supportive clusters or confluences.
A concentration of bullish and bearish indicators within a narrow price range will
normally result in a strong price barrier.
We have covered most of these overlays in other sections of this handbook,
so we will not repeat them here. We shall instead now turn our attention to Floor
Trader’s Pivot Points.
What are floor trader’s pivot points?
The Floor Trader’s Pivot Points is a trend‐following and volatility indicator. It is
a numerically based overlay. Depending on the range of the previous day, it will
project various levels of resistance (R1, R2, R3, etc.) and support (S1, S2, S3, etc.)
for the next day. It also projects a pivot point level, PP, around which the day’s
action unfolds.
To construct these pivot points, first find the previous day’s typical price. This
represents the next day’s pivot level, PP. To construct the first pivot support level,
we project the difference between the previous day’s high and PP downward from
the PP price. Similarly to construct the first pivot resistance level, we project the
fIgure 8.24 Buy Signal and Trigger on the Daily Chart of Goldman Sachs Group Inc.
Courtesy of Stockcharts.com