Monday, January 25, 2010

Daily Profit Targets: Handicapping Likely Directional Movement

This is a follow-up on my post outlining the recalculated daily profit targets. Going back to January, 2000, we find:

About 70% of all trading days touch their pivot level;

About 84% of all trading days touch either R1 or S1 levels;

About 66% of all trading days touch either R2 or S2 levels;

About 50% of all trading days touch either R3 or S3 levels.

The keys to using this information are twofold: 1) identify relative volume in real time to gauge likely market volatility and 2) track intraday sentiment in real time to gauge likely directionality. Those two factors help traders handicap in real time the levels we're likely to hit.

Range days will almost always trade back to the pivot level calculated from the prior day.

Trend days will almost always reach the R3 or S3 levels.

About 85% of trading days will take out their prior day's high or low.
For that reason, R1/S1 and the prior day's high/low are often good initial targets for directional trades.

On a strong market day, VWAP should be greater than the pivot level from the prior day. On a weak market day, VWAP should be less than the pivot level from the prior day. When VWAP is close to the pivot level, you're in a short-term range market.

The targets you hit or don't hit the prior day affect the odds of hitting targets the next day. Promising historical patterns come from such analyses.

You don't need to trade often. If you can catch one or two moves to the targets during the day with good size, you can make a good living and keep trading costs down.

I will be posting the new targets each morning via Twitter (
follow the tweets here).



Tariq said...

Dr. Steenbarger,

Thanks. Now I have a better understanding of how to use Pivot points along with R1, S1.

Tariq Malik
Hopkinton, MA

william said...

question: when you discuss pivot from the prior day are you referring to todays pivot ( thats calculated from the prior days range) or yesterdays pivot that is calculated from the day before?

Curtis said...

Brett, just want to thank you for providing without a doubt the best trader educational material on the web!


TradeMind said...

Hi Brett,
Thank you for being the perfect mentor/coach. I do have a question for you, do you have any good sources on pivot point analysis, such as books, websites or blogs ? I would like to learn more about them and how to use them.

Andrew Palladino
Rochester NY

Gary said...

Any numbers on how often the market takes out the Globex highs and lows during the RTH? Since takes out the prior day's highs or lows 85% of the time that number is probably the same.