Floors Pivot Points

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  1. Floors Pivot Points

Floors Pivot Points (FPP) are a technical analysis tool used to identify potential support and resistance levels in financial markets. Developed by Michael J. Carr, FPP are an extension of traditional pivot points, designed to be more effective in trending markets, particularly during periods of strong momentum. Unlike standard pivot points which are calculated based on the previous day's high, low, and close, FPP utilize the previous day's *range* and *volume* to pinpoint key price levels where the market might find support or resistance. This article will provide a comprehensive guide to understanding, calculating, and applying Floors Pivot Points in your trading strategy.

Understanding the Core Concept

Traditional pivot points assume that the market will attempt to retrace a portion of the previous day’s price movement. FPP, however, focus on identifying levels where buyers or sellers are likely to step in *based on the previous day's trading activity*. Carr’s core idea is that significant volume at specific price levels creates “floors” (support) and “ceilings” (resistance). These floors and ceilings are not merely price points; they represent areas where substantial buying or selling pressure occurred, making them likely to influence future price action.

The strength of an FPP level is directly related to the volume traded at or near that level. Higher volume generally indicates a stronger level. FPP are especially useful because they attempt to identify support and resistance *before* they are tested, giving traders a proactive approach to market analysis. They are designed to be dynamic, adapting to changing market conditions better than static support and resistance lines.

Calculating Floors Pivot Points

The calculation of FPP involves several steps, and understanding each component is crucial. The following formulas are used:

  • **Pivot Point (PP):** (Previous Day's High + Previous Day's Low) / 2
  • **Value Area High (VAH):** PP + ( (High - Low) * 0.618 ) (Note: Some sources use 0.62, 0.65 or other variations. 0.618 is the Fibonacci ratio, often used in technical analysis.)
  • **Value Area Low (VAL):** PP - ( (High - Low) * 0.618 )
  • **Point of Control (POC):** The price level with the highest volume traded during the previous day. This is a *critical* component of FPP and requires volume data.
  • **Initial Balance (IB):** The price range established within the first hour of trading on the current day. This helps define the short-term context.
  • **Floor 1 (F1):** VAL - ( (High - Low) * 0.196 )
  • **Floor 2 (F2):** VAL - ( (High - Low) * 0.382 )
  • **Ceiling 1 (C1):** VAH + ( (High - Low) * 0.196 )
  • **Ceiling 2 (C2):** VAH + ( (High - Low) * 0.382 )
    • Explanation of Components:**
  • **High & Low:** The highest and lowest prices reached during the previous trading day.
  • **PP (Pivot Point):** The midpoint of the previous day’s range.
  • **VAH (Value Area High):** Represents the upper boundary of the price range where 61.8% of the volume was traded.
  • **VAL (Value Area Low):** Represents the lower boundary of the price range where 61.8% of the volume was traded.
  • **POC (Point of Control):** The most actively traded price level, indicating strong agreement between buyers and sellers. This is often a magnet for price. Volume Profile is essential for determining the POC.
  • **IB (Initial Balance):** Provides a short-term context for the day's trading. Breaks outside the IB can indicate momentum.
  • **Floors (F1, F2):** Potential support levels below the VAL.
  • **Ceilings (C1, C2):** Potential resistance levels above the VAH.
    • Important Considerations:**
  • **Data Requirements:** Calculating FPP requires access to historical price and *volume* data. Most charting platforms provide this information. TradingView and MetaTrader 4 are popular options.
  • **Timeframe:** FPP can be calculated for any timeframe (daily, hourly, 15-minute, etc.). The daily FPP are commonly used for swing trading, while shorter timeframes are favored by day traders.
  • **Accuracy:** The accuracy of FPP depends on the quality and reliability of the data used.

Applying Floors Pivot Points in Trading

Once calculated, FPP can be used in a variety of ways to inform your trading decisions.

  • **Identifying Support and Resistance:** The primary use of FPP is to identify potential support and resistance levels. Traders watch for price to retrace to these levels and potentially bounce (support) or reverse (resistance).
  • **Setting Price Targets:** Floors and Ceilings can serve as price targets for trades. For example, if you buy at a Floor level, you might set a target price at the next Ceiling level.
  • **Stop-Loss Placement:** FPP can help you strategically place stop-loss orders. A common strategy is to place a stop-loss order just below a Floor level (for long positions) or just above a Ceiling level (for short positions).
  • **Entry Signals:** Breakouts of FPP levels can signal potential trading opportunities. A breakout above a Ceiling might indicate a bullish trend, while a breakout below a Floor might suggest a bearish trend. Breakout Trading strategies are often combined with FPP.
  • **Confluence with Other Indicators:** FPP are most effective when used in conjunction with other technical indicators. For example, combining FPP with Moving Averages, Relative Strength Index (RSI), or MACD can provide stronger trading signals. Look for confluence – where multiple indicators align to suggest the same trading opportunity.
  • **Monitoring Volume:** Pay close attention to volume as price approaches FPP levels. Increased volume at a Floor or Ceiling strengthens the level. Low volume suggests the level might be weak and prone to being broken. Volume Spread Analysis can be incredibly helpful here.
  • **Initial Balance (IB) Context:** If price fails to break the IB early in the trading session, it suggests a continuation of the previous day’s trend. A break of the IB can signal a potential trend reversal.

Advanced FPP Strategies

Beyond the basic application, here are some advanced strategies using FPP:

  • **FPP and Fibonacci Retracements:** FPP levels often align with Fibonacci retracement levels, creating strong areas of potential support and resistance. Fibonacci Trading can reinforce FPP signals.
  • **Multiple Timeframe Analysis:** Calculate FPP on multiple timeframes (e.g., daily, hourly, 15-minute) to get a more comprehensive view of support and resistance. Aligning FPP levels across multiple timeframes increases their significance.
  • **Value Area Relationships:** Observe the relationship between the current day's value area and the previous day's value area. An expanding value area suggests increased volatility, while a contracting value area indicates consolidation.
  • **POC as a Magnet:** The Point of Control (POC) often acts as a magnet for price. Expect price to be attracted to the POC, even if it temporarily moves away. Order Flow analysis can help understand price action around the POC.
  • **Combining with Elliott Wave Theory:** FPP levels can potentially coincide with wave targets and retracements in Elliott Wave analysis.
  • **Using FPP with Candlestick Patterns:** Identify candlestick patterns (e.g., doji, engulfing patterns) forming at FPP levels to confirm potential reversals.
  • **FPP and Ichimoku Cloud:** Look for intersections between FPP levels and the Ichimoku Cloud to identify areas of strong support or resistance.
  • **FPP and Bollinger Bands:** Observe how price interacts with FPP levels relative to Bollinger Bands. Price touching a Floor level and simultaneously reaching the lower Bollinger Band can signal a potential buying opportunity.
  • **FPP and Harmonic Patterns:** Harmonic patterns (e.g., Gartley, Butterfly) can sometimes complete near FPP levels, providing additional confirmation.
  • **Dynamic FPP:** Recalculate FPP at the end of each trading day to adapt to changing market conditions. Don't rely on static levels; keep them updated.

Limitations of Floors Pivot Points

While FPP are a valuable tool, they are not foolproof.

  • **Whipsaws:** In choppy or sideways markets, FPP levels can generate false signals (whipsaws) as price bounces between support and resistance without establishing a clear trend.
  • **Gaps:** Significant gaps in price can invalidate FPP levels.
  • **Subjectivity:** The selection of the Fibonacci ratio (0.618, 0.62, etc.) can introduce some subjectivity.
  • **Data Dependency:** The accuracy of FPP relies heavily on the accuracy of volume data, which may not always be readily available for all markets.
  • **Not a Standalone System:** FPP should not be used in isolation. They are most effective when combined with other technical analysis tools and risk management techniques. Risk Management is paramount.

Resources for Further Learning

Floors Pivot Points are a powerful tool for identifying potential support and resistance levels. By understanding the underlying principles, mastering the calculations, and applying these techniques strategically, traders can gain a valuable edge in the financial markets. Remember to always practice proper risk management and combine FPP with other forms of analysis for optimal results.

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