AIME Tools

Everyday

During every session

Within every timeframe

Having worked with well over a thousand students, I’ve seen a commonality with most new traders: They tend to think “more is better.” Meaning, these folks LOVE to pile on the indicators!

Why?

Usually, it’s based on the belief that having more indicators will help them make better trading decisions, which makes sense if it were accurate. Unfortunately, nothing could be further from the truth!

You see, “more” indicators leads to information overload, which creates CONFUSION, which winds-up giving them a case of analysis paralysis (a dreaded disease known to cripple aspiring traders) – because for every indicator telling them to “enter,” there’s another telling them to “wait”.

Talk about frustrating!

So, instead of more, I prefer less and subscribe to the belief (especially when it comes to trading and indicators) that less IS more . We just have to make sure the indicators we select tell us everything we need to know to make good decisions. The above said, what follows is a quick overview of the primary tools I rely on.

Pivot Clusters

Why?

Because commercial traders have at their disposal the kind (i.e., “amount”) of money capable of really moving the market. So, it’s important for you to know they heavily rely on support and resistance levels. This being the case, “it’s elementary, dear Watson” that in order to succeed, we, the traders with accounts of less than a bazillion dollars, should follow the commercial traders’ collective lead – and this means keeping a fixed eye on S/R levels.

Make sense? Excellent; I hoped it would.

S/R levels, as explained here, are called “pivot points” (which is an accurate name, because price tends to “pivot” – up or down, long or short – when it reaches them). They are typically calculated using a mathematical formula that relies on a currency pair’s previous day's high, low and close values (HLC). The pivot point calculator I developed generates thirteen points; and, as a rule of thumb, you can count on at least three of these (and probably more) playing a role in the current day’s trading session. (Note: This section is titled “Pivot Clusters” and without getting into these here and now, clusters are something I use and thoroughly get into in the AIME course.)

Okay, besides the commercial traders using Pivot Points, why else should you want to include these in your trading arsenal? There are a couple of reasons:

When an uninitiated trader looks at a price chart, it appears that prices randomly go up and down. But, if that same trader plotted pivot points on the same price chart, he or she would immediately notice that price movement is NOT random – in fact, they’d see there’s a method to the madness, and here’s why:

If you understand trading is based on fear and greed (i.e., it’s emotional), you’ll see when price reaches a S/R level, traders tend to collectively enter or exit positions, which can catapult the market in the opposite direction. To get a better idea of what I’m talking about, look at the below chart.

When looking at the above chart, remember the pivot points were calculated and drawn BEFORE the start of the new trading session – when price was near the blue vertical line. As such, price filled-in “after the fact.” Magic? Not at all.

To say the least, pivot points (and clusters) are VERY useful. But how do we find these little gems?

Good question!

There’s been a lot of research on commercial pivot points. So, it’s no surprise there’s some disagreement on the subject, including the formulas used to calculate the pivot points. The same goes for the times used to calculate the open, high, low and close (because the forex is open 24/7, traders use a variety of times in their calculations).

So, based on this variance of formulas and times, non-commercial traders can generate pivot points that don’t mesh with the commercial traders. On the flipside, you can be pretty darn sure the commercial traders are all tuned-in to the same radio station (i.e., “WPIP”) – meaning they’re all using the same input values.

“You mean to tell me there’s a good-old-boys trading club!” says you.

Um… yep. We’re talking about capitalism, what did you expect? Anyway, this can be a disaster for “non-members.” I’m not saying they’re the “only” ones to use… but, hey, they work for me. Ultimately, you get to decide what values you want to use.