We all know that Pivot points are one of the most basic and powerful indicators, we use in the Technical analysis. However, it is composed of a pivot line that is surrounded by a series of support and resistance levels. It helps in speculating the price movements. There are different parts of pivot points that are used by price action traders. Among them, one of the well-known indicators is Central Pivot Range or CPR Indicator. In this post, I will talk about the central pivot range indicator and its application in Zerodha.
The Central Pivot Range Indicator FAQs
The Central Pivot Range or CPR is one of the most popular as well as versatile price-based indicators that is available to traders. At any particular time, the range can either be support or resistance. Moreover, it can logically forecast trending or sideways any security’s price behavior. Also, dictate the particular day’s direction, or serve as an integral part of a trend.
CPR or central pivot range is one such trending indicator, that is quite popular among day traders. The pivots indicator to some extent is better. Unlike other technical indicators, CPRs are not lagging but leading indicators. Also, they are static and remain at the same prices throughout the particular day at all timeframes.
Basically, you can express CPR as a percentage. Central Pivot Point (P) = (High + Low + Close) / 3.
1) First Resistance (R1) = (2*P) – Low.
2) Second Resistance (R2) = P + (R1-S1)
3) First Support (S1) = (2*P) – High.
4) Second Support (S2) = P – (R1- S1)
What is Central Pivot Range (CPR)?
Basically, Central Pivot Range is a well-known technical indicator among traders. It is usually comprised of 3 levels. These are a central pivot point (pivot), top central level (TC), and bottom central level (BC).
The calculation of the levels is very simple:
TC = (Pivot – BC) + Pivot
Pivot = (High + Low + Close)/3
BC = (High + Low)/2
As you can see from the above CPR formula, all the 3 levels are calculated using just 3 variables, High, Low, and Close price. When you add CPR levels in a stock’s chart, TC is highest. The pivot is at the center and BC is the lowest level. However, depending on market conditions TC’s value may be lower than BC. Irrespective of the calculation, the highest of the 3 values is typically termed as TC and the lowest in BC.
The fundamental idea behind this indicator is that the particular day’s trading range captures everything about the market sentiment, and hence this range can be used to predict the price movement of the following days.
The previous day’s high, low, and close prices are used to calculate the CPR levels for the current day. And these levels remain constant throughout the day.
Central Pivot Range Indicator in Zerodha
On Kite search for ‘Pivot’ in studies, and you’ll find the CPR indicator –
This is 15-minute chart of M&M here. Once you load the CPR indicator, it loads as three horizontal lines, as seen below.
One thing that stands out is the varying width of the CPR. Here, the three points have been marked.
Just look at the first arrow starting from left, ignore the CPR but look at the price action itself. Remember this is the 15-minute chart, and it is quite clear that the day started with a small green candle with not much movement throughout the day. The open and close were close to each other.
Whenever, we have a sideways movement, the next day’s CPR narrow ranged, this is exactly what we observe the next day. Now the 2nd day itself was trending day. Hence the CPR for 3rd day was a wide-ranged one.
So the point is –
- If today is a narrow range day, tomorrow’s CPR will be a narrow ranged CPR
- If today is a trending day, tomorrow’s CPR is a wide-ranged one. Higher the trend, wider is the CPR.
Alright, so how do we use the CPR? Well, this is quite straightforward –
Bullish outlook, look for buying opportunities when the current market price is higher than ‘Top central pivot’ or the (TC).
Let me elaborate. Assume a stock has rallied for a bit. The current market price is higher than the TC, and you are looking for an opportunity to set up a buy trade.
You can now wait till the stock arrests its rally and retraces back to the TC line.
I’ve highlighted a possible opportunity here –
From a price action perspective, when the current market price is higher than the TC, it indicates that the traders are willing to buy even though the average price is higher. Hence, you should look for buying opportunities. Remember, when CMP is higher than TC, the TC now acts as a support line.
Likewise, when the stock or the index is trading lesser than the “Bottom Central Pivot’ (BC). When the current market price is less than that BC, it implies that there is bearishness in the market, hence look for selling opportunities.
Again, look for a price pull back to the BC line before initiating a fresh short.
You can even trade the stock while it is within the CPR. Trading while the stock price is within the CPR is like a range trade.
You buy when the stock is at BC, with TC as a target and sell (fresh short) when the stock is at the TC with an expectation that the price declines to BC soon.
Of course, I do know many traders who prefer not to trade the range and prefer to trade only the pullbacks. I too would prefer to use CPR only to trade the pullbacks.
Notes to Remember
- When you plot the EOD CPR, the previous month’s OHLC is referenced
- Previous week’s OHLC is a reference when you plot CPR for 30mins and 1-hour candles
- Previous day’s OHLC is referenced when you plot CPR for 1, 3, 5, 10, and 15 minutes candles
We found that the CPR indicator to be highly accurate in the intraday timeframe. It’s recommended to use it in a 5-minute chart for high beta stocks or indices. If you trade based on CPR breakout with volume confirmation, the success rate can be as high as 70%. But don’t forget to put a stop loss to save your capital from unexpected moves. As a general rule, you can use one of the CPR levels as a stop loss. For example, if you BUY as stock based on TC breakout, then the BC line can be your stoploss. If the CPR width is very narrow you can even look at the previous day’s CPR levels as a stop loss.
Like everything else in technical analysis, CPR also is not a holy grail. You can only succeed with proper position sizing and risk management.