Central Pivot Range

The central pivot range (CPR) is a technical analysis indicator used in financial trading to pinpoint possible market support and resistance levels. It is sometimes referred to as the pivot zone or pivot range. By locating probable entry and exit locations for trades and setting stop-loss levels, it aids traders in making better informed trading decisions.

Its application extends to various financial instruments, including stocks, futures, and forex, making it a relatively simple and easy-to-use technical analysis indicator. Hence, it can be used multiple times, from short-term intraday trading to longer-term swing and position trading. Moreover, CPR is based on three key levels: the pivot point (PP), upper pivot range (UPR), and lower pivot range (LPR).

• The Central Pivot Range (CPR) refers to a technical analysis indicator commonly used in trading to identify potential levels of support and resistance in the market.
• Traders calculate the CPR using the previous day's high, low, and close prices, and they use it to determine the levels at which they may want to enter or exit trades.
• Thus, traders can easily apply this user-friendly technical analysis tool to various financial instruments, such as stocks, futures, and forex.

Central pivot range (CPR) refers to a tool employed in financial trading that utilizes the prior day's high, low, and close prices to determine possible market support and resistance levels.

In addition, the CPR comprises three levels: the pivot point, calculated as the average of the high, low, and close prices from the previous trading day; the upper pivot range, determined by subtracting the pivot point from the highest price reached in the last day; and the lower pivot range, obtained by subtracting the pivot point from the lowest price achieved during the previous day.

Therefore, traders use CPR to determine potential market support and resistance levels. For instance, traders interpret a price above the pivot point as a bullish signal, considering the upper pivot range as a potential level of resistance. Therefore, traders perceive a price below the pivot point as a bearish signal, where they view the lower pivot range as a potential level of support.

Besides, traders can apply the central pivot range trading strategy across a variety of timescales, ranging from short-term intraday trading to longer-term swing and position trading. Furthermore, it is compatible with various financial instruments, including forex, futures, and stocks.

Furthermore, CPR is often used with other technical indicators and analysis methods to help traders make informed trading decisions. Hence, central pivot range indicators are commonly available in popular trading platforms.

For instance, pivot point indicator, custom indicator, and CPR indicator are a few examples of CPR indicators. However, traders should note that relying solely on the CPR as the basis for making trading decisions is not recommended, and it should always be used in conjunction with fundamental analysis and other forms of market analysis. Hence, the central pivot range Thinkorswim provides the ability to create custom studies and indicators using Thinkscript, their proprietary scripting language.

Let us look at some popular trading strategies for central pivot range:

1. Upward Trend in Central Pivot Range Strategy

In the Central Pivotal Range (CPR) trading strategy, when the CPR levels make higher highs every day, it suggests that the security is in an uptrend. It indicates that the overall trend is bullish, and traders should focus on long positions, aligning themselves with the trend.

2. Downward Trend in Central Pivot Range Strategy

In the Central Pivotal Range (CPR) trading strategy, when the CPR levels make lower every day (CPR is below the other), it suggests that the security is in a downtrend. It indicates that the overall trend is bearish, and traders should focus on shorting opportunities, aligning themselves with the trend.

Source

In the chart of BankNity Futures given above from TradingView, both are clearly visible. The uptrends are visible and marked in blue, where the market has gone up, making higher highs along with short consolidation periods. Thus, the trader can form an opinion that the market has the tendency to go up. Later, the Downward trend is also visible and marked in green.

For both cases, the support and resistance levels provide an idea regarding which are the levels beyond which a breakout is possible, either upside or downside. Accordingly, it is also possible to calculate the extent of profit or loss from the entry point. 

3. Medium Trend in Central Pivot Range Strategy

When the CPR has a medium range (neither too narrow nor too wide), it suggests a neutral stance where the security may or may not exhibit a clear trend. It indicates that the market is in a consolidation phase or lacks a strong directional bias.

Source

In the Chart above related to the NASDAQ 100 index, the market is in a ranging form. There is neither any significant uptrend nor any significant downtrend. Therefore, it can be said that it is in a Medium Trend. 

4. Wide Trend in Central Pivot Range Strategy 

In the Central Pivot Range (CPR) trading strategy, when the range of the CPR is wide, it suggests that the stock or market experienced significant trending movement in the previous day. This wide-range CPR indicates the possibility of a sideways or range-bound day, where the price is expected to consolidate or experience a cooling-off period after the previous day's trend.

5. Virgin CPR

In technical analysis, the term "Virgin CPR" describes a scenario where an asset's price opens above or below the central pivot range (CPR) without having touched any of its levels during the previous trading session. In other words, the price in the previous session has not tested or breached the CPR levels.

A Virgin CPR is often seen as a strong indication of the market sentiment, suggesting a strong bias towards bullish or bearish activity. If the price opens above the CPR, it suggests a bullish sentiment, while an opening below the CPR suggests a bearish sentiment. This is clearly shown in the chart of Nifty 50 below, where twice the CPR have opened without touching any levels of the previous day, proving the Virgin CPR. 

Source

To calculate the central pivot range (CPR), there are a few basic steps involved:

#1 - Determine The Pivot Point (PP)

Add the previous trading day's high, low, and close prices.

Then, divide the sum by 3 to get the Pivot Point.

The formula for Pivot Point is:

PP = (High + Low + Close) / 3

#2 - Determine The Upper Pivot Range (UPR)

Subtract the Pivot Point from the high price of the previous day.

The formula for UPR is:

UPR = High - PP

#3 - Determine The Lower Pivot Range (LPR)

Subtract the low price of the previous day from Pivot Point.

The formula for LPR is:

LPR = PP – Low

After calculating the Pivot Point, Upper Pivot Range, and Lower Pivot Range, plot these levels on a price chart.

The Pivot Point is the center point, and the Upper Pivot Range and Lower Pivot Range are the potential resistance and support levels, respectively. Traders can use these levels to identify possible entry and exit points and set stop-loss and take-profit levels.

Let's say that on the previous trading day, the asset had the following price data:

High: 100

Low: 80

Close: 90

To calculate the CPR, use the following formula:

Central Pivot Point (PP) = (High + Low + Close) / 3

Resistance 1 (R1) = (2 x PP) - Low

Resistance 2 (R2) = PP + (High - Low)

Support 1 (S1) = (2 x PP) - High

Support 2 (S2) = PP - (High - Low)

Using the data above, the calculation of the CPR levels would be as follows:

PP = (100 + 80 + 90) / 3 = 90

R1 = (2 x 90) - 80 = 100

R2 = 90 + (100 - 80) = 110

S1 = (2 x 90) - 100 = 80

S2 = 90 - (100 - 80) = 70

Therefore, for this asset, the CPR levels for the current trading day would be:

Central Pivot Point (PP): 90

Resistance 1 (R1): 100

Resistance 2 (R2): 110

Support 1 (S1): 80

Support 2 (S2): 70

Thus, traders can use these levels as potential support and resistance areas during the trading day, and they may consider buying or selling around these levels based on their trading strategy and analysis.

This has been a guide to what is Central Pivot Range. We explain the topic in detail, including its trading strategies, formula, and calculation example. You can learn more about it from the following articles –

• Japanese Candlestick
• Doji Candle
• Hanging Man Candlestick