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Percentage of Stocks Trading Above their Pivot Point
The percentage of stocks trading above their pivot point is a breadth indicator that measures the overall market sentiment.
It calculates the total number of stocks trading above their tomorrow's pivot point level and divides that value by the number of stocks trading below their tomorrow's pivot point level.
The formula of the floor pivot point is:
PP = (high + low + close) / 3;
This market breadth indicator should be used mainly for very short-term predictions (one or two days). It creates the following ticker symbol: "_Stocks_Above_PP"
When applied to S&P 500 index (^GSPC), for example, I found the following trading rule to be quite profitable:
- Buy the S&P 500 when the "percentage of stocks trading above their pivot point" decreases (one-bar return)
- And when the S&P 500 index decreases too
You can of course add additional rules to make the trading system even better, but I won't tell you which indicators or time-series to use.
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
