Pivot Point Moving Averages

The Pivot Point Moving Averages indicator calculates two simple moving averages based on the arithmetic mean of the high, low, and close prices to help traders identify short-term trend shifts and momentum based on the entire price range of a bar.

Usage

The Usage section describes how the script can be used to identify market direction. Traders typically look for crossovers between the two moving averages to determine entry or exit points. For example, a bullish signal occurs when the fast-period PPMA (defaulting to period 1) crosses above the slow-period PPMA (defaulting to period 3). This suggests that the average price is trending higher relative to its recent history.

Because these averages utilize the pivot point—the average of the high, low, and close—rather than just the closing price, they provide a more comprehensive view of the session's price action. This can be particularly useful in volatile markets where closing prices might not fully represent the session's overall sentiment.

Details

The concept behind this indicator is derived from Chapter 6 of the book Candlestick and Pivot Point Trading Triggers: Setups for Stock, Forex, and Futures Markets by John L. Person. The core calculation involves determining the "Pivot Point" for every bar, which is defined as:

Pivot = (High + Low + Close) / 3

The indicator then applies a Simple Moving Average (SMA) to these pivot values. By focusing on the median price range of the candle, the indicator aims to reduce the "noise" associated with closing-price fluctuations and offers a smoother trend-following perspective.

Settings

• Period 1: Determines the lookback length for the first simple moving average.
• Period 2: Determines the lookback length for the second simple moving average.

FAQ

What is the benefit of using the pivot point instead of the closing price for a moving average? Using the pivot point (HLC/3) incorporates the entire range of the trading session, which can offer a more balanced view of market value compared to the closing price, which only represents the final transaction.

Can this indicator be used for trend-following strategies? Yes, the crossover of the two PPMAs is a common trend-following technique used to identify shifts in momentum and potential trend reversals.

How can I access the Pivot Point Moving Averages tool? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.