CAMARILLA PIVOT POINT

CAMARILLA PIVOT PIONT

Discovered in 1989 by Nick Stott - a successful bonds trader - the Camarilla equation quite simply expounds the theory that markets - like most time series - have a tendency to revert to the mean. In other words, when markets have a very wide spread between the high and low of the day before, they tend to reverse and retreat back towards the previous day's close. This suggests that today's intraday support and resistance can be predicted using yesterday's volatility.

The Camarilla Equation is for experienced traders and involves you in trading both with and against the trend, using simple rules based around price penetration of the L3 and L4 levels at the bottom of the days range, or the H3 and H4 levels at the top of the day's range. It relies on the fact that success in intraday trading requires you to enter and exit trades with the backing of major support or resistance, the positioning of this resistance being determined by the equation. To use the Camarilla Equation, you enter yesterday's open, high, low and close. The calculation then gives you 8 levels of intraday support and resistance.

H4 = (H - L) X 1.1 / 2 + C

H3 = (H - L) X 1.1 / 4 + C

H2 = (H - L) X 1.1 / 6 + C

H1 = (H - L) X 1.1 / 12 + C

L1 = C - (H - L) X 1.1 / 12

L2 = C - (H - L) X 1.1 / 6

L3 = C - (H - L) X 1.1 / 4

L4 = C - (H - L) X 1.1 / 2

HOW TO USE CAMARILLA LEVELS:

I) If Open price is between H3 and L3

Wait for the price to go below L3 and then when it moves back above L3 then go long. Stoploss will be L4

Wait for the price to go above H3 and then when the price moves back below
H3 then go short. Stoploss will be H4

II) If Open price is between H3 and H4

When price moves above H4 go long. Stoploss when be H3

When the price goes below H3 then go short sell. Stopless will be H4

III) Open price is between L3 and L4

When price moves above L3 go long. Stoploss will be L4

When the price goes below L4 short sell. Stoploss will be L3

IV) If Open price is outside the H4 or outside the L4 then wait for the prices to come in range and trade accordingly.