What ‘prior pivot points’ are and how to use them

Tramlines are parallel lines that enclose all trading activity within the channel between the tramlines. The upper tramline is a line of resistance, while the lower line is a line of support.

Eventually, either support or resistance gives way and the market moves through one of the tramlines.

But before the market enters the trading channel, it will make a series of minor lows or highs.

I have found that these points can have a mighty influence on the market in the future as it trades within the channel!

In fact, many times, they act as a ‘pivot’ for one of the tramlines.

That’s why I refer to them as prior pivot points or PPPs.

Let me walk you through a great example with crude oil:

Crude oil spread betting chart with PPPs

(Click on the chart for a larger version)

To the left of the chart, you can see that the market is declining. Then it experienced a good bounce, only to decline again past the vertical yellow line I have drawn in.

The market then embarked on a slow-grind, upward march with many overlapping minor waves.

There was a head-fake on 23 April, but crude recovered to trade back within the channel.

I was able to draw tramlines describing this trading channel (between the yellow lines). The lower one (second tramline down) fell nicely across many of the minor lows, while the upper one passed over the three major highs (red arrows).

This upper tramline also passed through the low marked PPP. This PPP lies outside the trading channel, as do all PPPs.

Also, my PPP is a low, and my red touch-points are highs. The PPP must be opposite to the tramline touch-points – a PPP-low must go with highs, and a PPP-high must go with lows.

The PPP anchored the upper tramline in a vice grip – and determined the positioning of my other tramlines – perhaps for days to come.

This is powerful information to have access to.

I have found that my tramlines are much more secure if they have a PPP.

After that, crude plunged down breaking the tramline as marked by my right-hand yellow vertical line. In fact, at that point the market was challenging the fourth tramline – quite a plunge in two days – and since tramlines act as targets, this was an area to watch.

Let me give you another example. Here is a good PPP on the chart for the S&P:

S&P 500 spread betting chart with PPPs

(Click on the chart for a larger version)

Even from so long ago, this PPP has anchored my upper tramline with two lovely touch-points (red arrows).

So look for possible PPPs when searching for tramlines.

• If you’re a new reader, or need a reminder about some of the methods I refer to in my trades, then do have a look at my introductory videos:

The essentials of tramline trading

Advanced tramline trading

An introduction to Elliott wave theory

Advanced trading with Elliott waves

Trading with Fibonacci levels

Trading with ‘momentum’

Putting it all together

• Don’t miss my next trading insight. To receive all my spread betting blog posts by email, as soon as I’ve written them, just sign up here
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3 Responses

  1. 04/06/2012, Jacek Wiscicki wrote

    Hello,

    Would you please explain in more details how I can tell the difference between PPP and “real” tram lines and determine trading channel.

    Kind regards

    Conrad

  2. 04/06/2012, Chris P wrote

    Hi John, thank you for your insightful mails which are excellent and fun to read. I wonder if you will be prepared to offer any advice on a good software system from which to access your charts? (Also, any difference if it is to be for a MAC and not a PC?) Kind regards
    Chris

  3. 06/06/2012, lexington wrote

    Hi John, another great and helpful post from you. However, I am not sure how you are determining the PPPs…..are they actual retrospective, daily pivot points? If so, which software are you using which holds that info? My charts only show the daily pps for the current day.

    Love the tramline info…..has really helped my trading. Thanks so much.

    Jane

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