Central Pivot Range (CPR) Trading Strategy
In this article, I will discuss the Central Pivot Range (CPR) Trading Strategy, i.e., Price Action Trading Using CPR. Please read our previous article discussing Pivot Point Trading Strategies, i.e., How to Day and Swing Trade Using Pivot Points.
What is the Central Pivot Range (CPR) Indicator?
The Central Pivot Range is widely known as CPR. Traders can use it for intraday as well as swing or positional. CPR acts as a support or resistance. it can forecast trends and trending or sideways markets. CPR gives traders the advantage of FORECASTING the trend to make a profitable ENTRY
Calculation of CPR (Central Pivotal Range)
The Central Pivot Range is an average price calculated using yesterday’s (high, low, close) trading session and applied to the current trading session. As the Central Pivot Range is based on past data, It does not change and fix in all time frames. Central Pivot Range as dynamic support and resistance FOR different traders. CPR can be calculated daily, weekly, monthly, or yearly, depending on your trading style.
- Investors – Yearly Levels
- Position Traders – Monthly Levels
- Swing Traders – Weekly Levels
- Day Traders – Intraday Levels
What are these three lines now?
Calculating the 3 different pivot points within the CPR is as follows,
𝗣𝗶𝘃𝗼𝘁 Point = (High + Low + Close)/3
𝗕𝗖 (Bottom central pivot point) = (High + Low)/2
𝗧𝗖 (Top central pivot point) = (Pivot – BC) + Pivot
R2 = PP + (high-low)
S2 = PP – (High – Low)
R3 = High + 2(PP-low)
S3 = Low – 2(High – PP)
How does CPR differ from traditional Pivot Points?
The traditional pivot points generally have one central pivot line surrounded by support (S1, S2, S3) and resistance (R1, R2, R3) levels. The Central Pivot Range (CPR) consists of 3 levels (a central pivot point (pivot), a top central level (TC), and a bottom central level (BC)). usual support and resistance lines are above and below CPR, as shown below:
How does Central Pivotal Range CPR) Work? How to Interpret CPR?
Finding Overall Trends Using CPR
CPR can be used in finding trends.
The uptrend in Central Pivotal Range Trading Strategy
- When the CPR makes higher highs every day (CPR is one above the other), that indicates that the particular security is in an uptrend.
- the trend is bullish, so our intention should be on the long side. follow the overall trend because the trend is your friend. The PREVIOUS DAY’s LOW should not be broken. If it is broken, we can expect a trend reversal.
- The entry methods are pull back or retracement to CPR or R1 breakout. check here the pivot point strategy
Some examples of uptrend in a 5-minute time frame
Downtrend in Central Pivotal Range Trading Strategy:
- When the CPR makes a lower low every day (CPR is below the other), that indicates that the particular security is in the downtrend.
- When security is in a downtrend, you should always look for shorting opportunities. follow the overall trend because the trend is your friend. PREVIOUS DAY HIGH should not be broken. If it’s broken, we can expect a trend reversal.
- The entry methods are pull back or retracement to CPR or S1 breakout. check here the pivot point strategy
Some examples of down in a 5-minute time frame
Sideways in Central Pivotal Range Trading Strategy
- When the CPR is moving up and down (one day, it is up, and the next day, it is down), that means the stock is in a sideways trend.
- We cannot identify a proper trend in this stock; thus, we can consider the stock to be in a sideways trend.
- If you are a beginner, you should avoid trading in sideways stocks as there is a high probability of stop-loss hunting in these stocks.
HERE IS THE PRICE CHART WITH CPR
Finding Future Trends Using CPR Trading Strategy
Analyzing the width of CPR (Central Pivot Range), you can easily predict the trend of any security. We can divide the width of the Central Pivot Range into three types.
- Narrow Range CPR
- Medium Range CPR
- Wide Range CPR
Narrow Range CPR (Central Pivot Range) Trading Strategy:
When the width of the Central Pivot Range is narrow, it means that the stock was within a small range in the previous day, week, or month, depending on the CPR you are using.
consolidation or sideway move in yesterday so that you can expect a breakout and trending move today. We can say that whenever there is a NARROW CPR, we can expect a good trending day today or tomorrow. So, if you are trading stocks for intraday or swing, find narrow CPR for breakout trading. Below are some examples of narrow CPR
Medium Range CPR (Central Pivot Range) Trading Strategy:
When the CPR has a medium range (neither too narrow nor too wide), we can consider the CPR as a Medium-Range CPR. A medium-range CPR indicates that the security may or may not trend as like narrow CPR.
Wide Range CPR (Central Pivot Range) Trading Strategy:
When the range of the CPR is very wide, it means that the stock was trending within a big range in the previous day. When any stock trended the previous day, we can expect some cool-off (pullback/consolidation).
Due to the trending day, today’s CPR will mostly be a wide-range CPR. Thus, we can say that whenever we see a wide range of CPR, that indicates a high possibility of a sideways day or range day.
Multiple Time Frames Using CPR Trading Strategy
- PRICE above both higher timeframe and lower time frame CPR is bullish (opposite for bearish)
- PRICE above CPR of the higher time frame and below of lower time frame, range-bound or consolidation
Support and Resistance
The Central Pivot Range acts either as a support or as a resistance, depending upon the market trend. IF HIGHER CPR MEANS A BULLISH TREND. WE EXPECT TO PRICE RESPECT Central Pivot Range AND CONTINUE WITH THE BULLISH MOMENTUM.
How to trade with CPR or Central Pivotal Range?
CPR BULLISH ENTRY METHOD
- Use a 5-minute time frame for intraday trading. Add CPR indicator.
- If the price is above CPR and HIGHER HIGH CPR, then wait for the retest OF CPR.
- If the price retests CPR from the upper side and forms a bullish REVERSAL candle AT CPR,
- then you have to buy that stock ABOVE BULLISH reversal candlestick pattern
- Stoploss will be candle’s low ALONG WITH just below the lowest CPR.
- TARGET NEXT PIVOT (R1/R2 IN UPTREND)
Let us see some examples.
Central Pivot Range Trading Strategy Summary:
The Central Pivot Range (CPR) is a technical analysis tool that can be used to identify key price levels for trading. It consists of three levels: the central pivot point (Pivot), the top central pivot (TC), and the bottom central pivot (BC). The pivot point is the primary support/resistance. This pivot and its relation to the TC and BC can provide a variety of trading signals. The CPR is calculated based on the high, low, and close of the previous trading session:
CPR Trading Strategy:
Here’s how you might construct a trading strategy using the CPR:
1. Identifying the Trend:
- If the CPR is narrow for the day, it could indicate a breakout in either direction.
- A CPR above the previous day’s CPR indicates a bullish sentiment, and vice versa for a bearish sentiment.
2. Entry Points:
- Bullish Setup: Enter a long position if the price is above the Pivot point and shows signs of holding as support. The TC can serve as a target or resistance level.
- Bearish Setup: Enter a short position if the price is below the Pivot point and shows signs of holding as resistance. The BC can serve as a target or support level.
3. Stop Loss and Take Profit
- For Long Positions: A stop loss can be placed below the BC or a recent swing low. Take profit can be at the TC or extended to higher resistance levels like R1, R2, etc.
- For Short Positions: A stop loss can be set above the TC or a recent swing high. Take profit can be at the BC or further down at support levels like S1, S2, etc.
4. Additional Confirmations:
- Incorporate other technical indicators for additional confirmation, such as RSI, MACD, or Stochastic, to gauge overbought/oversold conditions.
- Volume analysis can also help confirm the strength of the pivot level as a support or resistance point.
5. Risk Management:
- It is vital to manage risk by ensuring that the potential loss from the stop loss level to the entry point is justified by a proportional potential gain to the take profit level (risk/reward ratio).
6. Breakout Strategy:
- Traders can also use CPR for breakout strategies where a move beyond the TC or BC may indicate the potential for a strong trend day. The entry would be on the breakout, and the stop loss could be on the opposite side of the CPR.
- Time Frame: CPR can be calculated on various time frames but is most commonly used on daily charts for day trading.
- Market Open: Pay attention to where the market opens in relation to the CPR. An open above the TC can be very bullish, while an open below the BC can be bearish.
- Weekly and Monthly CPR: Traders also look at weekly and monthly CPR levels for longer-term trend indications.
- Market Adaptability: The effectiveness of CPR can vary across different markets and should be backtested for each market a trader wishes to apply it to.
CPR can be a powerful addition to a trader’s toolkit, providing clear levels for potential entry and exit points and placing stop losses. As always, it is most effective when used with other forms of analysis and sound risk management practices.
In the next article, I will discuss the Swing Trading Strategy Using a Pivot Point. Here, in this article, I try to explain the Central Pivot Range (CPR) Trading Strategy, i.e., Price Action Trading Using CPR. I hope you enjoy this Central Pivot Range (CPR) Trading Strategy article. Please join my Telegram Channel and YouTube Channel as well as my Facebook Group to learn more and clear your doubts.
About the Author: Pranaya Rout
Pranaya Rout has published more than 3,000 articles in his 11-year career. Pranaya Rout has very good experience with Microsoft Technologies, Including C#, VB, ASP.NET MVC, ASP.NET Web API, EF, EF Core, ADO.NET, LINQ, SQL Server, MYSQL, Oracle, ASP.NET Core, Cloud Computing, Microservices, Design Patterns and still learning new technologies.