Central Pivot Range (CPR) is one of the prominently used indicators by day traders that helps you to identify the important price levels to set up trades. CPR can also be used to understand or predict the trends in the market. The major concept behind determining the price levels is support & resistance (S&R). Support is the lowest price the stock can reach over time whereas, Resistance is the highest price the stock can rise to over time. To know more about the S&R and Pivot points, refer to this blog.
CPR value is calculated on the previous day’s High, Low and Close and is denoted by three lines/levels Top Central Pivot (TC), Pivot Point (PP), Bottom Central Pivot (BC) as displayed below:
Let's take a look at the formula with which CPR is ascertained:
Pivot = (High+Low+Close)/3 of the previous day
Bottom Central Pivot = (High+Low)/2
Top Central Pivot = (Pivot - BC)+Pivot
Sometimes, the Top Central Pivot value might be lower than Bottom Central Pivot (If the market is bearish). However, the highest value of the three will always be considered as TC and the lowest to be BC irrespective of the calculations.
For Instance, HCL Technologies Ltd’s High, Low, and Close on 15th December’21 was 1161.95, 1142.30, and 1148.90, respectively.
So, Pivot point, Bottom Central Pivot & Top Central Pivot for 16th December will be
Pivot = (1161.95+1142.30+1148.90)/3 = 1151.05
BC = (1161.95+1142.30)/2 = 1152.15
TC = (1151.05 - 1152.15) + 1151.05 = 1151.05 - 1.1 = 1150
Below displayed is the chart of HCL Technologies (5 Minute Timeframe) after adding CPR Indicator:
However, that's just calculations. Right! Let us use the above levels and see how they could’ve been used on 16th December for trading.
As displayed above, on 16th Dec’21, HCL Tech was trading above the TC level, but as the session went by, there was a significant pullback and the price retraced to take support at the CPR.
Once the price at the CPR was sustained, the Bulls in the market got activated. As a result, the stock rallied till the end of the session. This is called CPR Pullback (Bullish).
If you were looking for a Buying opportunity in the market, this was it!
Note: No Strategy/Indicator is 100% winning. So, kindly analyze, backtest and then trade accordingly.