What is CPR in Trading? - Meaning, Calculation and Advantages

Pivot points represent a fundamental yet potent tool employed in technical analysis. They consist of a pivot line encircled by a series of support and resistance levels, aiding in speculating price movements. Price action traders utilize various types of pivot points, but the Central Pivot Range (CPR) Indicator is currently garnering widespread attention.

What is a Central Pivot Range?

Traders widely embrace the CPR indicator as it identifies pivotal price levels for trading. Utilizing the chart's various levels, traders execute trades strategically. The CPR indicator's popularity stems from its versatility and simplicity.

The chart displays three levels of the CPR indicator, representing pivot points. The highest point is the top central pivot and the lowest is the bottom central pivot.

Understanding the CPR indicator requires grasping two fundamental concepts: trading stock charts, candlestick patterns, and support and resistance levels. Trading charts identify critical breakout points, while support and resistance levels help traders pinpoint the lowest and highest potential stock prices. These levels act as safeguards, limiting potential losses for traders.

CPR Calculation

The CPR indicator derives three price levels through fixed formulas, utilizing the stock's highest, lowest, and closing levels from the previous trading day. Traders must employ the highest, lowest, and closing levels from the prior trading day to comprehend and predict the stock's price movement in the upcoming session.

The three levels of the CPR indicator are listed below, and the corresponding formula for their calculation.

• (Low + High + Close) / 3= Pivot point
• (BC – Pivot) + Pivot= Top CPR Point (BC)
• (Low + High) / 2= Bottom CPR Point (TC)

Trading With CPR Indicator

In a bullish market scenario, where the stock's market price surpasses the TC level in CPR, traders can actively enter the market. In this situation, traders should actively seek out opportunities for buying, with the TC level functioning as a supportive baseline.

Conversely, traders should actively explore selling opportunities when the current market price drops below the BC. The CPR provides traders with a crucial advantage, enabling them to forecast trends and execute profitable maneuvers. Trading is also feasible when the stock price remains within the central pivotal range, although traders seldom utilize this approach. Those who do can set the TC as their objective and acquire options at BC.

Advantages of CPR

CPR empowers traders to integrate multiple trading strategies for seizing lucrative positions. Traders can deploy this strategy independently or in tandem with various other indicators.

Unlike other technical analysis methods, CPR indicators stand out as highly esteemed trend and price indicators. Their popularity arises from the ease with which traders can comprehend and utilize these indicators.

Intraday trading is common among professional traders who regularly leverage CPR indicators. These traders use the robust resistance and support levels provided by CPR, incorporating them into their intraday trading strategies.

Trading Strategies with CPR Indicator

Here are some of the trading strategies you can use to trade with the CPR indicator:

Virgin CPR Strategy

Traders often employ the Virgin CPR strategy when the stock price prevents crossing the CPR lines. If a stock fails to touch the previous day's range, there is a 40% likelihood that it will be unable to break the CPR range. It's crucial to recognize that a virgin CPR can act as robust support or resistance depending on the prevailing market conditions.

Prices Trading Below or Above CPR Levels

If the current price surpasses the TC, it signals a buying trend where traders are inclined to buy the stock, even if the average price is elevated. In this scenario, the CPR offers support.

In a seller's market, identified when the current price falls below the BC, it signifies a bearish market with abundant selling opportunities. CPR functions as resistance during such situations.

Prices Trading Within CPR Lines

When the market accumulates and moves sideways, the current price trading between the CPR lines indicates this phase. Traders, in this situation, can employ volume analysis to anticipate a CPR breakout above the TC. An alternative approach for those dealing with a wide CPR involves purchasing at the BC with the target set at the TC.

To Sum Up

Traders can use CPR indicators to identify bullish and bearish trends in the market and execute suitable trading positions. When the stock trades above the TC, it strongly indicates a bullish trend. Conversely, a consistent trading price below the BC line strongly shows a bearish trend.

Another crucial consideration in trading involves employing stop losses. This holds particular significance for novice traders as it restricts potential losses or enables them to exit the markets with a guaranteed minimum of profits.