Pivot points

Pivot points are horizontal support and resistance lines

Pivot points are horizontal support and resistance lines placed on a price chart. The prices that they are placed at are calculated from the previous periods' price data. For example, daily pivot points use the data from the previous day. They are important because they are prices at which traders enter or exit the markets.

They make strong levels of support and resistance because many traders, as well as financial institutions and banks, use them.

Before computers and charts became a key tool that traders use so effectively, floor traders determined key buying and selling levels using calculations based on the data from the previous trading day. Pivot points are still extensively used today and they are very useful in determining entry and exit points.

Although any time period can be used to calculate them, daily and weekly pivot points are the most commonly used. Monthly pivot points are also common, although they are not used as much as daily or weekly.

The following chart shows you what they look like on a chart:

How to use pivot points

An important aspect to know about pivot points is that each level can be used for support or resistance. For example, the level R1 will generally be a strong resistance level. However, if the price breaks through and comes back down to it, it will also be a strong support level.

If the price is below the main pivot point, it means that market sentiment is likely to be negative and if the price is above the main pivot point, it is likely to be positive.

As with all support and resistance levels, there is strength in numbers. The more pivots that line up, the greater the potential will be for price to react at those levels. So for example, if a weekly and a daily pivot point are at the same price level, this will make an even more substantial support or resistance level.

Types of pivot points

There are different types of pivot points that are calculated and they revolve around what is called the main pivot point or daily pivot, the point at which the market is said to “pivot” around. After the main pivot point has been calculated, this is then used to calculate the other corresponding pivots points.

The pivot points above the daily pivot are labelled as resistance pivots, notably R1, R2, etc. If they are below, they are support pivots, labelled S1, S2, etc.

They are mostly calculated using a 5-point-system, comprised of:

• The median pivot point (PP)
• Two resistance levels (R1) and (R2)
• Two support levels (S1) and (S2)

Mid-pivot points

Pivot points that are between the pivot points are call mid-pivots. They are labelled differently. The mid-pivot between the S1 and S2 is labelled as M1, the mid-pivot between the S1 and the main pivot is M2 and so on.

Calculating pivot points

Where the calculations state a price, it is referring to the price of the previous period, for example the closing price is the previous day’s closing price.

Main pivot/Pivot point

Pivot point = (Highest price + Lowest price + Closing price) / 3

The first resistance level R1
R1 = (Pivot point *2) – Lowest price

The second resistance level R2

R2 = Pivot point + (Highest price – Lowest price)

The first support level S1

S1 = (Pivot point*2) – Highest price

The second support level S2

S2 = Pivot point – (Highest price – Lowest price)

Calculating mid-pivots

Mid-pivots are simply half way between the main pivot points. The calculations for mid-pivots are as follows:

M1= (S2+S1)/2
M2= (S1+PP)/2
M3 = (R1+PP)/2
M4 = (R2+R1)/2

Trading platforms have tools to calculate pivot points

It is important to note that there are many charting packages that provide these calculations automatically and others, such as MetaTrader 4, have the ability to install customised pivot point calculators. However, it is still useful to know the calculations in case you ever need them.

Different closing times will affect the calculations

Different markets have different closing prices that will affect the calculations.

The forex market, for example, is open for 24 hours and so the closing price is not easy to identify.

In contrast, the stock exchange has a clearly defined closing time and so the closing price is easily determined. However, with the forex market there are no open and closing times during the week for the market as a whole. You must therefore choose which particular trading session you wish to use for the closing price.

The following is a list of the most common closing times for the major markets

• Stock traders use the settlement price from the close of business day at 16:00 pm EST.
• Futures traders in the E-mini S&P, NASDAQ, and Russell contracts use the close of 15:15 CT. The CBOT Mini Dow contract uses 16:00 CT.
• Forex traders mostly use either 16:00 EST for New York bank settlements close or London midnight for the closing price.

Calculating weekly and monthly pivots

• For weekly calculations, take the open from Sunday night’s session and use the close on Friday.
• For the month, take the open from the first day of the month and use the last day for the close.

What’s in Store for 2014? Here’s What to Watch

For investors, this year is off to a mixed start. Stock market indexes maintained their gains from last year before dropping. Treasury bonds continued their losing streak in the weeks after the Federal Reserve announced that it was reducing its bond-buying program — until the stock sell-off caused people to buy bonds. Interest in emerging markets has dropped.

On a positive note, politicians in Washington did nothing in January to cause jitters in the financial markets. But there are still 11 months to go, and another deadline to raise the debt ceiling.

A variety of legislative actions and policy changes have gone into effect, are in effect but are only being felt now, or could come along later this year. What impact they could have on the financial markets and investors’ psyche is hard to predict. Putting aside the unpredictability of the troubled health care overhaul, here’s a look at some of the main policy events that could affect returns.

FEDERAL RESERVE POLICY. 

One consequence of the end of the Fed’s bond-buying program, which it said it expected to decrease by $10 billion at each meeting, is that interest rates are expected to rise. If this happens, investors in existing Treasury bonds would face more losses.

What are the alternatives? The simple one is to invest in stocks, but many investors have a parallel fear — heightened, no doubt, in the last few weeks — that stocks are overvalued. Anh Tran, a managing director at Modern Wealth Advisors in Irvine, Calif., said she had told clients to consider high-dividend-paying stocks and variable-rate high-yield bonds as alternatives to Treasuries. These two assets offer income and a hedge against rising inflation that fixed-rate bonds do not.

“They aren’t your Facebooks or tech companies,” she said. “These are large-cap companies that have remained consistent, like Johnson & Johnson, Procter & Gamble and Coca-Cola.”

For investors who prefer to hold bonds for income, there are products that can insulate them from rising rates and inflation. Steve Sachs, head of capital markets for ProShares, a provider of exchange-traded funds, said his firm had started two E.T.F.’s to hedge the risks for high-yield and investment-grade bonds.

Mr. Sachs said the E.T.F.’s were created to answer the question many investors have about Treasury bonds now: “What happens when the risk management tool you’ve been using to mitigate your risk becomes the source of your risk?”

There is a contrarian view of the Fed’s actions.

The Fed is tapering “at a time when the government is shrinking its deficit,” said Gary Ran, managing partner at Telemus Capital, a Focus Financial Partners firm. But that situation “doesn’t mean rates are going to go higher.”

Still, he said his firm had advised clients not to go too far one way or another. He said his firm was mindful that the economy could improve more quickly, which would cause the Fed to raise rates sooner than expected.

BANK REGULATION. 

This is the year when a host of rules with names like Volcker, Dodd-Frank and Basel III are set to rein in how banks in the United States have been doing business. Their goal is to avoid a repeat of the 2008 financial collapse.

“They’ve been stated, postponed, somewhat implemented, but the end result is heightened regulation of banks is breaking the traditional business model,” said Greg Peterson, director of investment research at Ballentine Partners, an adviser to high-net-worth clients. “They can’t make the loans they used to.”

This is not great for businesses that need loans, but it is an opportunity for nontraditional lenders. Mr. Peterson said he had talked to clients about investing in funds that lend directly to smaller companies. They are not without risks.

“In some sense, the systemic risks in the economy have been pushed out of the banks and onto the investors,” he said. “If one of these firms goes bankrupt, there’s no recourse. The investors have lost their investment.”

For this reason, he said investors needed to be vigilant in assessing managers and making sure their qualifications were not overstated.

MUNICIPAL BOND CONCERNS. When a judge allowed Detroit to file for bankruptcy last year, it was hard on the city’s workers and pensioners, not to mention its pride. But it also struck fear into the hearts of municipal bond holders, who were treated as unsecured creditors. Would this signal a way for struggling municipalities to not pay their debts?

For many municipal bond analysts, the bigger concern is Puerto Rico, whose bonds are more widely owned because of the tax advantages. The island’s ability to pay on these bonds has been questioned for months, and last week two ratings agencies downgraded its rating to junk.

Jim Cahn, chief investment officer at the Wealth Enhancement Group, said that what he called the “Detroit effect” caused investors to be more discerning, but that he hadn’t lost faith. Higher taxes will continue to make municipal bonds attractive, he said, because the interest they pay is not taxed federally.

BROKER RULES. Standards governing brokers and advisers are a longstanding issue. The fiduciary standard requires advisers to adhere to a higher ethical standard when making investment decisions for clients. The suitability rule allows brokers to recommend investments they think are suitable, even if their firm created the product and will profit more from the client buying it over a similar product.

This year the Labor Department is expected to rule on whether a fiduciary standard needs to be in place for the management of 401(k) plans and other investment vehicles that come under its purview. The ruling is expected to make anyone who offers advice on these plans adhere to the fiduciary standard.

But Knut A. Rostad, regulatory and compliance officer at Rembert Pendleton Jackson Investment Advisors and president of the Institute for the Fiduciary Standard, said how transformative the ruling would be would depend on how advice and education were defined. A firm calling its advice education might not be bound by the fiduciary standard.

“Many brokers work very hard underneath the headlights to provide a fiduciary level of service, even though they’re not required to,” Mr. Rostad said. “But there are many who don’t do that. From a regulatory point of view there is no way for a broker to be a fiduciary for retirement assets but not everything else.”

This is where any ruling from the Securities and Exchange Commission would have a broader impact.

Advisers like Mr. Rostad worry that an S.E.C. requirement for brokers to be fiduciaries could be so vague it would be worse than no requirement at all.

“Virtually overnight every single financial investment intermediary would call themselves a fiduciary, but they would be working under the same rules that they are now,” he said.

This is where investors need to become more vigilant in the questions they ask about how their advisers or brokers are paid and whether they are given further incentives to sell products by their own firm or any other.

“I think investors should understand what rubric they’re falling under,” said Mr. Cahn, whose firm operates as both a registered investment adviser with a fiduciary responsibility and a registered representative of a broker-dealer. “What kind of responsibility does the person have? They need to ask that question.”

SHALE GAS AND OIL. An absence of policy is helping the returns for investors in this industry. The new technologies that allow horizontal drilling and hydraulic fracturing in formerly untapped regions of the United States are contentious to some. But Ernest Moniz, the secretary of Energy, has called natural gas a bridge to alternative fuels, which has heartened investors who now see no change in policy for years.

Mr. Peterson said the investment opportunities were great, particularly in companies building refineries and pipelines to move oil and natural gas. “Oil production increased to such a high rate last year that it flooded the system and we couldn’t move any more,” he said.

YOUR TAX BILL. While there is no big change set for federal tax policy in 2014, now is the time when people realize just how much their taxes went up last year. In many cases, they went up significantly. What many advisers are focused on is how these higher tax bills are going to cause people to react.

In addition to higher taxes on earnings, taxes on capital gains went up last year. Couple that with a banner year for stocks and there are two immediate problems. The first is that investors may be hesitant to sell a stock on which they will have to pay a large capital gains tax, even though the company behind that stock is no longer as strong.

But at least those investors have a choice. The second problem is that people who owned stocks in mutual funds, which are required by law to distribute capital gains, had no choice but to pay taxes on the gains.

Michael Cronkhite, a senior vice president at Stephens Wealth Management, said he could imagine investors looking to replace mutual funds that simply track an index with lower-cost exchange-traded funds that are not required to make the capital gains distributions.

“The caveat is if the mutual fund you’re in has appreciated a lot, you’ll trigger capital gains by selling it,” he said. “It’s more about control for the client.”

And when it comes to policy decisions, that is one area where investors do not have as much control as they might like.

Trading Basic: Introduction to the Capital Markets

A financial or capital market is a platform or exchange that allows people to easily buy and sell financial securities, commodities, and other items of value at low transaction costs and at prices that reflect the current market.

Markets work by placing many interested sellers in one area, thus making them easier to find for prospective buyers. An economy which relies primarily on interactions between buyers and sellers to allocate resources is known as a market economy. Some of the largest and most well-know financial markets include the NYSE and US 100 INDEX for stocks, and the NYMEX for commodities. These exchanges or markets exist in almost every country. GCM uses these markets as a base for its products thus providing transparent pricing which reflects the current markets. Also, sample information and research are available on GCM products thus enabling clients to easily get the most up-to-date information.

One of the great things about trading with GCM is its versatility, it can be applied to just about any financial market. GCM offers you the chance to trade on a wide array of different financial products from all around the world. All of these can be traded on one account, so it means that although you gain incredible diversity of markets, it is also kept quite simple to trade and monitor your financial position.

Types of financial markets

Here is a brief introduction to the most popular markets that we offer:

• Foreign Exchange market

The FX (Forex) market is where currency trading takes place; it is one of the biggest and most liquid financial markets in the world, with a daily turnover estimated to be over $4 trillion. One major benefit of trading Forex is the opportunity to trade 24 hours a day, enabling traders to react and take advantage of the market movements at all times.

• Stock market

A stock market is a public market for the trading of the company stock and derivatives at an agreed price. GCM offers products on the US 30 INDEX, US 100 INDEX, UK 100 INDEX and more.

• Commodity market

Commodity markets are markets where raw and primary products are exchanged. This is one of the fastest growing markets which is becoming more and more popular with retail traders. Previously these products were only available to institutions. Margin trading now allows retail investors the opportunity to invest in these markets. Our commodities cover an extensive variety of products, including metals, oils, gas and all major soft commodities.

Introduction to Margin Trading

Margin Trading is one of the fastest growing ways for retail investors to gain access to the world’s financial or capital markets. This surge in popularity over recent years is due to the easy-to-understand benefits of Margin Trading. With GCM everything is done online and is as easy as shopping online. Our aim is to offer both beginners and advanced traders alike the ability to invest in multiple financial markets from a single integrated online account.

How to Choose the Right Strategy to Invest in the Forex Market

The currency trading (FOREX) market is the biggest and fastest growing financial market on earth. More than 2.5 trillion dollars is traded daily. The participants in this market are banks, organizations, investors and private individuals. The market consist of the currencies of various countries. For example you buy Euro, paying with US dollars, or you sell Japanese Yens for Canadian dollars.

How does one profit in Forex?

Obviously, buy low and sell high. The profit potential comes from the fluctuations (changes) in the currency exchange market. The nice thing about the FOREX market, is that regular daily fluctuations, say - around 1%, are multiplied by 100.

How risky is Forex trading?

You cannot lose more than your "margin" (your initial investment) You may profit unlimited amounts, but you never lose more than what you initially risked. However your should only trade with risk capital in the Forex market.

What is Freedom Rocks?

Freedom Rocks is a long-term Forex investment strategy. As you understand the profit components explained below, the reasons for this long-term viewpoint will become apparent. As you read the descriptions of each component below, recognize that the first 2 components will virtually always be profitable. 

Investors will realize profits in 3 very distinct ways as illustrated by the following formula:

Trading (Buying Low / Selling High) - Always profitable

Investors will make (on average) 2 - 5 trades per week (depending on overall market volatility). Since we always sell at a higher rate than we buy, those trades will always be profitable.

Interest - Virtually always profitable

Barring any significant shifts in world interest rates, investors will net a positive rate of interest each day on their portfolios. You can determine, in advance, the approximate amount of daily interest you will receive by using our Portfolio Allocator (based upon today's approximate interest rates). This money is deposited into your account by your broker each day. You are normally paid triple the daily interest amount on Wednesdays to compensate for the weekends.

Market Fluctuation - Can be positive or negative

This component is completely subject to the normal (and sometimes extreme) movements in the Forex market. It cannot be predicted with any degree of accuracy. In the long run, statisticians would tell us this should average out to zero. In the short run, however, market fluctuations can and will cause extreme movements (in both directions) in your account equity. We provide guidelines to help minimize these movements, but there are no guarantees. Over time, Trading profits and Interest profits will continue to build. The Market Fluctuation will either be positive or negative.