Sunday, July 10, 2011

New pivot lines

I have always been a fan of confluence in pivots. There are so many varieties of calculating pivots and no one method has ever seem to consistently produce better results. Enter pivotfarm. They have done the leg work to testing this theory. And day after day they produce the confluence zones for all possible pivot methods. Daily, Weekly, Camarilla, Woodies, Floor and going beyond the norm, they also incoporate maket profile pivots (which are not called pivots but in effect they create a similar market--albeit more in depth-- report as the others).

I went back over the past 3 months with their confluence zones (as they call the overlapping zones) and found they performed even better than my own CRB fibonacci extensions. I think this is mainly for 2 reasons. 1, they are not symmetrical (fibonacci extensions are calculated in a linear fashion) and 2, they are effective immediately on the open of London. No need to wait for a range breakout before creating a setup.

With a simple back test I observed a huge uptick in performance over the past 3 months.
April topped out with More than 500 pips, May with 500 Pips and June with an impressive 450 pips. I still find reversion stops to be the most profitable way to take a loss as many of the short term stops often turn in to tiny profitable trades. The trick with this very anti-risk measure is to keep the standard deviation below 2.0. For these results I set it at 1.5 so the average length between upper and lower bands was only 60 pips. It allows you to get to breakeven as soon as possible so that the trailer (the meat and potatoes of the mean reversions success) to get to work at catching huge trends in a reasonably timely manner.

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