Lessons From The Multi-Pivots For June 20, 2011

[QUOTE=Billy;13762]If anyone can find a reliable historical source for this I would be most grateful!
My hypothesis is that many decades ago, before the age of computers and light-speed trading, when most floor traders were lowly-educated people who never graduated in anything, they needed easy-to-compute formulas for defining intermediate levels for sizing in and out of their positions.
One day a statistician made a study and probably discovered the bell curve standard deviation structure of the pivot formulas. It started to work for one, then a few, then several, then many floor traders as the word spread around, further reinforcing the self-prophecy nature of the pivots.
I remember my first days as a market maker trainee, expecting complicated technical analysis and charting trading lessons. I never saw any chart or any technical analysis. Only spreadsheets with the house position's average price compared to the various floor levels. And it worked!
Billy[/QUOTE]

And is the same for most of the great mm's on the cboe. I met a few over the last years, most can't read a chart even if their lives depend on it.

As to the initial formulas for daily pivots and support/resistance levels, I have vague recollections of old time commodity traders saying they existed as early as the 1970's. But, they could have existed long before and originated in other markets (perhaps even as a footnote in the Buttonwood Agreement).

The idea was apparently scaled up to multiple time frames, including weekly and monthly, by none other than John Person himself (whose book you often cite, Billy) along with some other CBOT traders in 1984. From his website:

[QUOTE]Before going any further let me further explain who uses the pivot point numbers, mainly floor traders, hedge funds, prop traders and large speculators all use them. However, the popularity is growing as investors quest for education increases. I picked up on the method back in 1984 as a colleague was showing me how to day trade the foreign currencies, namely the Swiss Franc and the German Deutsche Mark. This was way before forex was popular. In fact trading currencies at the CME has been around since the 1970's. Pivot Point analysis and using a pivot point calculator worked fairly well in those days so I incorporated it for the market I had a passion for, which was Bonds. After using them for some time as a “crutch” I was losing interest as a day trader. I experimented with them using this concept of a longer time period namely on a weekly basis. Wow what a discovery! Then I came to the conclusion to try to use them on a Monthly basis after all I was a believer in Daily, Weekly and Monthly Charts. In fact the Chicago Board Of Trade use to give out a monthly Bond Chart and another friend of mine on the floor use to get together with me for “homework” sessions. We would do longer term chart studies using Moving Averages. I figured why not look at the monthly pivot point price targets too. WOW again! I discovered that I could look at a potential price range target in the future based on price action in the past. The longer the time frames the more power or market move would happen.[/QUOTE]

A more candid and colorful description of these after-market "homework" sessions is [URL="http://vodpod.com/watch/5789331-john-person-interview-recalling-his-floor-trader-days-from-the-80s"]here[/URL], in which Person is not afraid to give Heineken its due credit.

From there, it's conceivable that the NASDAQ, perhaps with other exchanges, created the more formal system you were taught, with weightings and even higher time frames.

Pascal or Billy,

Have you created a table showing the results of the backtesting of the GDX Robot? If so can you share it?
Steve


[QUOTE=EB;13766]As to the initial formulas for daily pivots and support/resistance levels, I have vague recollections of old time commodity traders saying they existed as early as the 1970's. But, they could have existed long before and originated in other markets (perhaps even as a footnote in the Buttonwood Agreement).

The idea was apparently scaled up to multiple time frames, including weekly and monthly, by none other than John Person himself (whose book you often cite, Billy) along with some other CBOT traders in 1984. From his website:



A more candid and colorful description of these after-market "homework" sessions is [URL="http://vodpod.com/watch/5789331-john-person-interview-recalling-his-floor-trader-days-from-the-80s"]here[/URL], in which Person is not afraid to give Heineken its due credit.

From there, it's conceivable that the NASDAQ, perhaps with other exchanges, created the more formal system you were taught, with weightings and even higher time frames.[/QUOTE]

Bob,

That's a funny interview with John Person. He seems like a guy you'd like to have a Heineken (or two) with. Sounds like he and his buddies had some great times back then while finding better ways to trade.

Heineken bah. I wonder what pivot system he'd come up with if it was Duvel instead.

[QUOTE=slgerritz;13772]Pascal or Billy,

Have you created a table showing the results of the backtesting of the GDX Robot? If so can you share it?
Steve[/QUOTE]

sure:

[url]http://www.effectivevolume.eu/content/Reports/Trading_GDX.pdf[/url]

The corresponding IWM file can be found on the Robot main page.


Pascal

[QUOTE=EB;13766]
From there, it's conceivable that the NASDAQ, perhaps with other exchanges, created the more formal system you were taught, with weightings and even higher time frames.[/QUOTE]

Bob,

The NASDAQ did not create a more formal system with weightings and higher timeframes.

In the 1990's, senior mm's did manage the longer (yearly, semester, quarterly) timeframes positions and that's where the bulk of the profits originated from. Every new week and month they would charge their "mature" subordinates with the weekly and monthly sizing in and out volumes.
So, mature mm's were managing the weekly and monthly timeframes. Each day they would distribute the planned sizing-in or out volumes for the day to junior mm's.
So, daily pivots were left over to junior mm's.

The "formal" system with weightings is my own creation, and I've never seen it practiced by anyone else than by those who learned it from me. I also added the 50 dma and 200 dma to the system because these are usually the levels that institutions prefer. Most institutional decision-makers need to be protected by an umbrella to justify their decisions and these moving averges are the ideal visual and psychological umbrellas. My best institutional client was giving me the list of stocks and approximate volume he was interested in, telling me ; "Don't call me unless these stocks come near their 50 dma or 200 dma". He only gave the green light for building a position or making block trades when it was the case. I also created the cluster concept and practice.

John Person is a great guy, but his "multiple timeframes" pivot system he's talking about has nothing in common with mine. He trades each timeframe independently, while I am weighing confluences of market makers and institutional investors interests.
By the way, I've mostly stopped drinking any alcohol now, but at the time he's talking about, my favorite drink was another creation of mine that I named a Red Nose: Gin, Crème de Cassis and Ice Tea. Beware, it's very treacherous!
Billy

[QUOTE=Billy;13779]my favorite drink was another creation of mine that I named a Red Nose: Gin, Crème de Cassis and Ice Tea. Beware, it's very treacherous!
Billy[/QUOTE]

That sounds disgusting Billy :)
But I'm not one for cocktails anyway ... except for the occasional Mojito in summer.
How about beer ? What kind do you like ?

[QUOTE=Rembert;13780]That sounds disgusting Billy :)
But I'm not one for cocktails anyway ... except for the occasional Mojito in summer.
How about beer ? What kind do you like ?[/QUOTE]

The Red Nose Beer of course!

[ATTACH=CONFIG]8919[/ATTACH][ATTACH=CONFIG]8920[/ATTACH]

Yeah that's a nice beer on occasion. But a little too sweet for my taste. I prefer more bitter beers, strong on hop content.