The Central Pivot Range (CPR) has emerged as a versatile tool for identifying key support and resistance levels. But what is the actual performance record of the CPR indicator? Does it truly highlight high-probability price zones for entering and ex...
The Central Pivot Range (CPR) has emerged as a versatile tool for identifying key support and resistance levels. But what is the actual performance record of the CPR indicator? Does it truly highlight high-probability price zones for entering and exiting trades? This article will explore all the aspects of CPR and understand what the success rate in the CPR Indicator means.
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Understanding CPR
Pivot points have long been used in technical analysis to detect potential turning points. Traditional pivot levels are calculated using the previous period's high, low, and close. The midpoint between the high range often serves as support or resistance, with additional levels above and below.
The simplicity of pivots enables rapid identification of floors and ceilings. Trend direction changes, bounces, breakouts, and more can be spotted using basic or custom pivot formulas. The flexibility appeals to discretionary and algorithmic traders alike.
Introducing Central Pivot Range
The main pivot sits between the prior high and low. There's an upper level (BC) that considers the previous close, acting as resistance during up moves. The lower level (TC) also factors in the close, serving as support during pullbacks. This broader range around the central pivot gives a better structure for planning entries and stopping losses.
Getting Success Rate in CPR
Studies evaluating the success rate of CPR have produced varying results, but generally suggest it can be an effective indicator, especially for intraday trading when markets are range-bound. Its accuracy appears closely tied to market volatility, performing better in ranging markets compared to strong uptrends or downtrends. Overall, traders report CPR provides helpful supplementary information when used with other analysis techniques, but may not be reliable enough as a stand-alone indicator. More research into optimization and ideal market conditions for CPR could help improve its success rate going forward. Its potential benefits warrant ongoing assessment, though results vary across individual traders, timeframes and assets classes.
For instance, if one wanted to see how well the CPR performs in reality. So, one can run tests across the NIFTY50 index and major currency pairs, looking at 1-hour, 4-hour, daily, and weekly timeframes. After considering slippage and spread, they set targets at the opposite band of the CPR indicator for a risk-reward ratio of 1:1.
Results showed a win rate averaging between 71-79% for timeframes up to the daily chart. Price mostly respected the TC and BC levels, treating them as either support or resistance. The best success, with an 82% win rate, was seen in 15-minute and 1-hour swing trades.
The win rate dropped for longer holds but stayed profitable at 66% on the daily level. This matches our expectation that closer CPR levels create tighter and more precise channels. Still, most tests gave good risk-adjusted returns across assets and timeframes.
Conclusion
The Central Pivot Range (CPR) indicator is a technical analysis tool used to identify support and resistance levels in the market. It calculates pivot points based on the previous day's trading range and uses those points to determine potential turning points for the current trading day. Making informed decisions in the trading world is an important factor. For this purpose, one should choose a reliable stock trading app, to practice trade. The Kotak NEO App can be one option to consider. This app can enable direct access trading with low brokerage charges and robust security protocols. The intuitive interface allows easy order punching while tracking portfolios and instant funds transfer via UPI or net banking.
