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Chapter One - Determining Likely Support and Resistance
Section Two - Pivot System Support and Resistance (Excerpt)

PTC_01_02_02_1.GIFFloor traders and other professionals who do the actual buying and selling of futures contracts in the trading pits of the exchanges, generally employ very similar systems for valuing the price of such contracts in the absence of significant outside influences. These systems employ a method of calculating relative value based on the price activity of the prior day. A price equilibrium point is determined as well as support and resistance levels in relation to that equilibrium point. This method is called the Pivot System.

Pivot System price levels act as potential support and resistance zones throughout the day. They serve as focal points for floor professionals as they adjust their bids and offers, especially when trading activity is slow. The use of these values, along with additional support and resistance levels as explained later, help in determining appropriate areas for trade entry, stop placement, and exits.

The principle reference level under this system is the Daily Pivot. Generally, as we enter each trading day, we regard this level as our balance point between bullish and bearish forces. A demonstration of significant price activity above the Daily Pivot is considered to have bullish implications, while significant activity below this level is bearish. Although actual trading activity is initiated by a variety of other market indications, we look at price behavior relative to the Daily Pivot level as an aid in determining the market's general directional bias.

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