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Trading requires a lot of analysis to support traders’ movement in the market. These analysis data can be gathered from many sources. One of the most useful analyses we can use especially in 2021 is CPR or Central Pivotal Range. Central Pivot Range (CPR) is used by many professional traders because it is one of the most versatile and easy price-based indicators to traders. This versatility and simplicity make CPR more popular for traders than indicators in the previous day.
Benefits of CPR in Trading
The pivot range concept is considered as useful indicators because it provides great detail and illustrates how to combine trading methods to profit in the market. The pivot range can be used in two ways, as an addition to other price-based indicators or as a standalone indicator. CPR is very practical because it allows you to analyze the market in a variety of ways, including pivot width analysis, two-day pivot analysis, and pivot trend analysis. There are several other reasons why pivot range analysis is far better.
- It is static
Pivot range analysis is leading indicators, unlike other indicators that are lagging. CPR indicator is static and remains at the same stock prices throughout the day at all timeframes. It means if Nifty pivot point is at 8500 and R1 (Resistance) pivot at 8600, then on all time frames for example in 3-minute, 5-minute, 15-minute, or even in 1 hour it is the same. It will not change like VWAP or volume weighted average price movements and other day trading indicators.
- Trusted by big institutes and high net worth investors
It is trusted by professional traders and they use pivot points for their day trading. It means that they know the small risk brought by the CPR indicator. Many big traders keep a watchful eye on daily pivot points as they are considered to be key levels at the intraday time frame. They have powerful support or resistance in day trading because many traders are looking at those levels.
Understanding Basic CPR Indicator
Before you try to apply this method of analysis, here are some important points you have to understand. Most traders use a pivot range CPR for intraday trading. The reasons behind it are because it’s an efficient indicator that provides a range that incorporates 3 different levels. The three different levels are the pivot point, top central pivot point, and bottom central pivot point. Here is the formula to calculate 3 different pivot points within the CPR.
- Pivot point- (High + Low + Close)/ 3
- Bottom central pivot point (BC)- (High + Low)/ 2
- Top central pivot point- (Pivot – BC) + Pivot
Remember that The High, Low, and Close of the formula above refer to the previous schedule’s highest, lowest, and closing price of the stock respectively. In addition, you have to understand two major concepts of CPR. The first one is Trading Chart & Candlestick Pattern. This major adequately describes the critical price points including their breakout points based on which the traders can decide their trades. The pattern of candlestick is a convenient tool to help traders in a better understanding of technical indicators like the CPR width.
The other major concept is Support and Resistance. In this major concept, Support identifies the lowest price range that stock might reach over time. Since the price of reaching the support level would start showing an increasing trend, support is considered as an important element.While the resistance is the highest price level that stock rises to. It also provides the trader with a maximum profit through selling. Support and resistance levels have a major role in safeguarding the trader from losses. That’s the reason why CPR marks these two levels and assists the traders.
How to Use CPR in Trading
The basic rules of trading is to trade when the stock has a bullish outlook or when the market price of the stock remains higher than the TC level in CPR. Here traders have to look for opportunities to buy, and the TC level functions as a support line. On the other hand, the traders have to know the right timing to sell with selling opportunities when the current market price goes less than the BC. In this trading, CPR provides the traders with the necessary advantage of predicting the trend, going up or going low, then making the profit move well.
Another rule of trading you have to understand is that trading is possible when the stock price remains within the central pivotal range. This kind of trading is rarely done by traders. As an option, traders can keep the TC as the objective and choose to buy options at BC. The other move traders can do is to opt for selling when the stocks are at TC and targeting BC. Moreover, using a stop loss is one of the most important factors to be done while trading based on CPR. To make the stop loss effectively, you can apply three different levels within the CPR above.