Understanding CPR and its Strategies

2023年9月18日

What is CPR indicator:-
Central Pivot Range (CPR) indicator is used to identify key points of price levels. The previous day's high, low, and close prices are used to calculate the CPR levels for the current day. It is comprise of 3 levels – Central pivot point (pivot point/PP), Top central pivot (TC) and Bottom central pivot (BC). These levels remain constant throughout the day. CPR is a leading indicator.

Calculation:-
TC (Highest level) = (Pivot – BC) + Pivot
PP (Center level) = (High + Low + Close)/3
BC (Lowest level) = (High + Low)/2
Note: TC’s value may be lower than BC. But for understanding purpose the highest of the 3 values is typically termed as TC and the lowest is BC.

Logic of this indicator:-
A day's trading range captures everything about the market sentiment, So this range is used to predict the price movement of the next day.

CPR width:-
Once you add the CPR to the chart, You will see three horizontal lines.
Top line is 'TC', Middle one is 'PP' and the Bottom one is 'BC'.
Width of the CPR lines gives an idea of the expected price movement.
If today is sideways movement throughout the day (distance between TC and BC lines of CPR is less), tomorrow’s CPR will be a narrow ranged CPR. It indicates a trending market.
If today is trending movement throughout the day (distance between TC and BC lines of CPR is more), tomorrow’s CPR will be a wide ranged CPR. It indicates a sideways market.
So More the trend, wider is the CPR and viceversa.

Chart Timeframe:-
CPR levels are calculated based on the daily timeframe and is used in an intraday timeframe.
But CPR indicator works equally well on higher timeframes. If you trade on the EOD timeframe, then CPR should be calculated based on weekly price levels. The same can be extended to any timeframe. CPR is calculated on a timeframe higher than the timeframe it is used for trading. I recommended to use it on 5 minute or 15 minutes chart for high beta stocks or indices for intraday trading.


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Strategy 1:- (CPR as Support & resistance Zone)

CPR can be used as Support and Resistance zone.
Any of the 3 CPR lines can be used for this purpose.
When price falling from up towards these lines, These lines can act as Support.
When price rising from down towards these lines, These lines can act as Resistance.
Target and Stoploss can be kept as per risk reward ratio.

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Strategy 2:- (TC & BC as Resistance & Support Line for Reversal/Pullback trades)

Buy = When current price is Higher than ‘Top central pivot’ (TC), market is bullish, So look for buying opportunities.
Buy Entry = Wait for price to pull back to the 'TC' line before initiating a new Buy Position.
Buy Stoploss = Keep 'BC' as Stoploss.
Buy Target = Keep Target as per risk reward ratio, that can be 1:1 or 1:2.

Sell = When current price is Lower than ‘Bottom central pivot’ (BC), market is bullish, So look for selling opportunities.
Sell Entry = Wait for price to pull back to the 'BC' line before initiating a new Sell Position.
Sell Stoploss = Keep 'TC' as Stoploss.
Sell Target = Keep Target as per risk reward ratio, that can be 1:1 or 1:2.

Note: Strategy 1 and 2 are almost similar except that in strategy 1 entire CPR is used as support zone or resistance zone. whereas in strategy 2 its TC and BC used as Resistance and Support Level respectively.




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Strategy 3:- (TC & BC for Breakout Trades)

Buy = Any breakout above 'TC' indicates a probability of up (Bullish) movement. Also if the breakout candle has higher volume than the previous candles, it gives an extra confirmation of up trend.
Buy Stoploss = Keep 'PP' or 'BC' as Stoploss as per your risk appetite.
Buy Target = Keep Target as per risk reward ratio, that can be 1:1 or 1:2.

Sell = Any breakdown below 'BC' indicates a probability of down (Bearish) movement. Also if the breakdown candle has higher volume than the previous candles, it gives an extra confirmation of down trend.
Sell Stoploss = Keep 'PP' or 'TC' as Stoploss as per your risk appetite.
Sell Target = Keep Target as per risk reward ratio, that can be 1:1 or 1:2.



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Strategy 4:- (CPR for judging Trend in the Market)

If the CPR lines forms higher high (HH) subsequent days and it looks like an upward ladder, it indicates strong bullish Trend.
Buy trades can be initiated using price action.

If the CPR lines forms lower low (LL) subsequent days and it looks like an downward ladder, it indicates strong bearish Trend.
Sell trades can be initiated using price action.


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Strategy 5 (Bonus Strategy for Options Seller, Selling OTM CE & OTM PE on Expiry)
- Good way to eat premium (theta) on expiry.
- You can also build algo or strategy based on this.

Sell PE = On Expiry day wait for the price to touch "TC" level, When the price touch "TC" level Sell "PE" of strike price below "BC" level. keeping "PP" as SL.

Sell CE = On Expiry day wait for the price to touch "BC" level, When the price touch "BC" level Sell "CE" of strike price above "TC" level. keeping "PP" as SL.

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Like other technical indicators, CPR also is not a holy grail. It can only assist you in building a good strategy. You can only succeed with proper position sizing, risk management and following correct trading Psychology (No overtrade, No greed, No revenge trade etc).

ABOVE SHARED EXPLANATION AND STRATEGIES OF CPR ARE ONLY FOR EDUCATIONAL PURPOSE ONLY. YOU MAY PAPER TRADE TO GAIN CONFIDENCE AND BUILD FURTHER ON THESE.

Hope you like it
Happy trading :-)

2023年9月20日

註釋

//you may do simple coding in tv to make an effective indicator with alerts using CPR.
//I feel Simple strategy or indicator is the best.
//As per me Indicator's are not good or bad. Its the Risk reward where most of the traders fail. Position sizing and Risk reward can make an indicator effective or ineffective upto an extent.
//Below is a simple code in "version 5" which can be coded.

//Condition (Amend conditions as per your requirement of Breakout/Breakdown trade or Support/Resistance based trades).
Buy= ta.crossover(close,PP)//BO trade, you need to define TC properly if want to use BO trade with TC.
Sell= ta.crossunder(close,PP)//BD trade, you need to define BC properly if want to use BD trade with BC.

//Plot
plotshape(Buy,title='Buy',text='Buy',location=location.belowbar,style=shape.labelup,size=size.tiny,color=color.rgb(27, 130, 1),textcolor=color.new(color.white,0))
plotshape(Sell,title='Sell',text='Sell',location=location.abovebar,style=shape.labeldown,size=size.tiny,color=color.rgb(233, 7, 7),textcolor=color.new(color.white,0))

//Alerts
alertcondition(Buy,"Buy","Buy")
alertcondition(Sell,"Sell","Sell")

//For NonRepaint :
//you may use previous candle closing. So that indication appears on next candle. for eg. may use close[1].
//Soon will be posting strategies on Bollinger bands, Supertrend, Envelope etc. which are simple and easy to code.

//Tc Happy Trading and Happy Coding.

2023年11月7日

註釋

This is for educational purpose only. Please consult your financial advisor before investing. we are not SEBI registered.