The Complete Guide to Central Pivot Range (CPR Indicator)
If you ask me about my trading setup, I will tell you about the CPR Indicator. The central pivot range is an essential part of my trading setup, and it highly influences my trading decisions.
The moment you start learning about technical analysis, you hear the term pivot points more often, and thats because pivot points are the most potent yet essential indicator used in technical analysis. See the image below; It has the pivot point P and 3 Support and Resistance pivot points at either side of the pivot point.
Endless possibilities are using the pivot points setup, but the one getting the most attention is the central pivot range or CPR Indicator.
So What is Central Pivot Range(CPR)?
The Central Pivot Range (CPR) is an indicator to identify key price points to set up trades. CPR is beneficial for intraday trading.
The pivot point is the center or average of prices and is calculated by adding days low, high, and close levels and dividing them by three.
Pivot Point = Previous Day (Low+high+close)/3
As the name suggests, the CPR gives us an upper and lower range from the pivot point. For CPR, we need two more points.
- Top Center Pivot
- Bottom Center Pivot
So when you apply CPR, you get three lines, Let’s have a look.
The calculation of the other two points is simple: finding a point-1 by adding high and low and dividing them by 2. Next, calculate point-2 by deducting point-1 from the pivot and then adding a pivot value.
So point-1 = (High+Low)/2
Point-2 = (Pivot – Point-1)+Pivot
Now keep the highest value of this point is Top Central Pivot and the other one as a Bottom center Pivot.
You don’t have to worry about calculation with current high-tech charting solutions, as it is available as an indicator.
In short, CPR gives us previous days’ trading range. The idea behind the CPR indicator is that the previous day’s trading range captures everything about the market sentiment. Hence, We can use the CPR to predict price movements in the upcoming days.
The previous day’s high, low and close are used to calculate the CPR for today, and the values remain constant throughout the day.
Mark Fisher gave the first reference to the CPR indicator in his book “The Logical Trader.”As per Frank Ochoa, “CPR is the swiss army knife of pivots, and like the moon, the central pivot range controls the tides of the market.”
How to interpret the CPR?
Let me tell you some essentials, Things that will help you interpret the market using CPR.
If any given day the price does not touch the CPR, the CPR be called virgin CPR.
See the chart. The three blue lines are CPR, and you can see the price failed to touch that range for a day, So the next day, there is a 40-50% chance that the price will fail to break that range.
The virgin CPR can act as strong support or resistance depending on the market scenario.
Price trading above the Top Central Pivot Point
From a price action perspective, when the current market price is higher than the TC, the traders are willing to buy even though the average price is higher. Hence, it would help if you are looking for buying opportunities. Remember, when CMP is higher than TC, the CPR now acts as a Support.
Price Trading below the Bottom Center Pivot
The stock or the index is trading lesser than the “Bottom Central Pivot’ (BC). When the current market price is less than three, it implies bearishness, looking for selling opportunities.
Also, the CPR or The bottom center pivot is now acting as a resistance. Have a look at a given image. When the price breaks the CPR and starts trading below the BC, the BC acts as a resistance level.
Price trading within the CPR
Some people love to trade at a sideways market, and price within the CPR is an Indication of a sideways market, or we can say an accumulation phase.
You can trade this by waiting for a breakout above TC with volume, or in case of wide CPR, you can buy at BC and keep target TC and sell at TC by keeping target BC. But I like the breakout ones more.
Usually, I consider three widths for CPR, Medium, Narrow, and wide. The width of the CPR depends on the market movement. If the previous day were a trending day, today’s CPR would be Wide; if the previous day is sideways, then today’s CPR will be narrow. The medium is kind of in-between narrow and wide. See the image below, and I have found some points in my study.
- As you can see, the sideways day gives narrow CPR, which can be a trending day for the market.
- With medium CPR, the chances of the market being sideways are high.
- The wide CPR is difficult to break through, hence acts as solid support or resistance.
Breakouts are my favorite kind of trades. With CPR, you can look for breakout trades when the price breaks below BC or Above TC with high volume confirmation.
See the above example of breakout. Mark my words “CPR is a wall, and it can only be broken by momentum and volume. A breakout is only when the high volume on that side supports it; otherwise, stay away. It’s a trap.
Note: The medium-width CPR gives good breakout trades.
As I have told earlier, the CPR acts as solid support and resistance, and Breakout can only happen with volume. You can trade CPR pullbacks with high accuracy by keeping an eye on volume.
CPR Time Frame
The high accuracy comes while plotting intraday CPR, But CPR can Also be plotted weekly and daily. The rule is to calculate CPR on a timeframe higher than where it is used for trading.
For a daily timeframe, use weekly OHLC, and For a Weekly timeframe, use Monthly OHLC values.
CPR Indicator Accuracy
Nothing works 100% of the time in the market, so anything above 50% is good if you keep an excellent risk-reward ratio.
I have been trading with CPR and price action for a long time, and I can say it works around 70-80% of the time if your plan is good. Just check for yourself!!!!! Happy Trading!!