As you can imagine, we are going to use Thomas DeMark’s pivot points formula, which is very different from
the traditional one. DeMark’s formula gives you only two levels, High and Low. You wont have the pivot point
and 2 support/resistance levels for the next session, you will only have the High and Low for the next session.
From now on, when I talk about Pivot points I will be referring to DeMark’s pivot points.
At first, you will find DeMark’s pivot points a little harder to calculate because the formula you have to use
depends on the price action of the previous session. Suppose it’s Sunday and we want to calculate the pivot
points for the next week, just like with the traditional formula we have to look at the chart from the previous
session. On this case, if we want to calculate the pivot points for this coming week first we need to look at the
chart from the past week and take note of the High, Low, Open and Close.
chart from http://www.netdania.com/
DeMark’s formula works this way:
You look at the previous week data, High, Low, Open and Close.
Scenario 1
If Close is LOWER than Open (close<open) you have to make this calculations:
High + Low + Close + Low = X
Projections for the coming week are:
HIGH for the coming week = X/2 – Low
LOW for the coming week= X/2 – High
Scenario 2
If Close is HIGHER than Open (close>open) you have to make this calculations:
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High + Low + Close + High = X
Projections for the coming week are:
HIGH for the coming week = X/2 – Low
LOW for the coming week= X/2 – High
Scenario 3
If Close is EQUAL to Open (close=open) you have to make this calculations:
High + Low + Close + Close = X
Projections for the coming week are:
HIGH for the coming week = X/2 – Low
LOW for the coming week= X/2 – High
Here’s an example using the same last chart. As you can see it’s a daily chart for EUR/USD and we want to
calculate DeMark’s pivot points for next week, so lets take a look at the past week Open, High, Low and Close:
chart from http://www.netdania.com/
OK, we have the following data from the past week:
High= 1.2204
Low= 1.1899
Open= 1.2024
Close= 1.2128
Now it’s time to calculate DeMark’s pivot points. What do we do first?, we find out what’s the scenario:
Scenario 1 says “If Close is LOWER than Open…”
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Lets see, we have Close 1.2128 and Open 1.2024. Is our Close LOWER than our Open? The answer is NO,
so we are not going to use the formula from scenario 1.
Scenario 2 says “If Close is HIGHER than Open…”
Lets see, we have Close 1.2128 and Open 1.2024. Is our Close HIGHER than our Open? The answer is YES,
so we are going to use the formula from scenario 2.
The formula from scenario 2 goes like this:
If Close is HIGHER than Open (close>open) you have to make this calculations:
High + Low + Close + High = X
Projections for the coming week are:
HIGH for the coming week = X/2 – Low
LOW for the coming week= X/2 – High
Now lets replace some words by numbers:
1.2204 + 1.1899 + 1.2128 + 1.2204 = 4.8435
HIGH for the coming week = 4.8435 / 2 – 1.1899 = 1.2319
LOW for the coming week= 4.8435 / 2 – 1.2204 = 1.2014
On our chart, it would look like this:
chart from http://www.netdania.com/
Now we have the estimated High for the coming week (1.2319) and the estimated Low (1.2014).
The first basic rule is: Buy when price hits the Low, and Sell when price hits the High.
Easy, eh?...
Below we have again our chart with the estimated high/low 1.2319/1.2014
The process of analyzing the market and deciding which direction is price going to take today is something like this : Next Article
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