TAI - Pivot Point Reverse Trading System

Name, Sometimes Called:

Pivot Point Reverse Trading System
Abbreviated to PPRTS

Brief Description:

The PPRTS is a simple way to determine minor changes in trend direction. However, it can only provide results a day after an event has occurred.

Definitions, Formulas:

If you can wait a day in order to use the Pivot Point Reverse Trading System (PPRTS), it can indicate minor trend changes in direction. The calculation applies to yesterday’s values, even though you’re calculating the PPRTS today.

A top pivot point (TPP) is defined when the yesterday’s high is higher than the highs both today and the day before yesterday. That is,

TPP = HighTODAY-1 > HighTODAY-1 and HighTODAY-1 > HighTODAY

Similarly, a bottom pivot point (BPP) is defined when yesterday’s low is lower than both today’s low and the low for the day before yesterday. That is,

BPP = LowTODAY-1 < LowTODAY-2 and LowTODAY-1 < LowTODAY

Since determining yesterday’s pivot points requires today’s prices, there will always be a one-day delay in using this TAI.

Positive Development Calculation:

For this TAI, a new positive development (NPD) occurs when ALL of the following conditions are met:

There was a bottom pivot point yesterday

and LowTODAY > LowTODAY-1

and LowTODAY-1 < LowTODAY-2

and CloseTODAY > CloseTODAY-1

This TAI can be confusing to understand in the abstract, so here is an example for HYPO, the Hypothetical Corporation. Highs are omitted in the interest of simplicity.

On Friday, we discovered that Thursday was a bottom pivot point because yesterday’s low (5.5) was lower than that on the day before (7.0) and yesterday’s low (5.5) was less than today’s low (6.0).

So, is Friday a positive development? Let us review the four points required:

Was there a bottom pivot point yesterday? YES
Was the low today higher than yesterday’s close? YES (6.0 > 5.5)
Was the low yesterday lower than the low of the day before? YES (5.5 < 7.0)
Was the close today higher than the close yesterday? YES (8.0 > 6.5)

All four conditions being met make Friday a positive development.

This TAI is no longer positive when ANY of the four conditions for a positive development no longer exist.

So let’s move forward one day and extend our example data to Monday.

On Monday, the closing price fell, so the fourth condition is not met:
Was the close today higher than the close yesterday? NO (7.9 not > 8.0)

Yesterday’s low (6.0) is lower than today’s low (7.4), but not lower than the low for the day before yesterday (5.5). So as of Monday, Friday was not a bottom pivot point.

If this TAI is still positive tomorrow, it will no longer be new, but will be a cumulative positive development (CPD).

If this TAI was a new positive development (NPD) yesterday, and is still positive today, then it becomes a cumulative positive development (CPD) .

History:

Looking for price trends is perhaps the simplest exercise in a trader’s attempts to profit in the market. This exercise often leads to looking for significant turning points, or pivot points, where the direction of a price trend appears likely to change. In fact, a pivot point is defined as that price at which the direction of price movement changes. By examining a security’s high, low, and closing prices, one can determine potential pivot points. The trick is to distinguish potential pivot points from actual ones. The TAI presented here can help in that effort.

There are at least three different ways to calculate pivot points. Most if not all articles discussing pivot points strongly urge their use in combination with other indicators.

This chart shows the PPRTS indicator in use. Monday is no longer a positive development (NLPD) because Friday wasn’t a bottom pivot point (BPP).