Camarilla Pivot Points is a very popular Intraday Trading method originated in 1989 by Nick Scott. The pivot points generated using Camarilla equation are used to generate Intraday levels for the stock using the High,Low,Close values from previous day. This method relies on the principle of Mean Reversion, however it has a flavour of Trend following too. Its is highly accurate for volatile stocks with good intraday volume. See the below calculator for Camarilla Pivot Points. You just need to enter the High,Low,Close values from the previous trading day for the selected stock and the pivot points would be calculated automatically.
Camarilla Pivot Points Calculator
Secret behind Camarilla Pivot Points
As mentioned in the introduction, Camarilla method works on the principle of Mean Reversion. Its a proven fact that most time series have a tendency to revert to the mean. In other words, when markets have a wide spread between the high and low 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 yestaerady’s volatility. This is the reason the pivot levels are generated using previous day’s range.
Camarilla Equation Levels
The Camarilla Equation produces 8 levels from yesterday’s open, high, low and close. These levels are split into two groups, numbered 1 to 4. The pattern formed by the 8 levels is broadly symmetrical, and the most important levels are the ‘L3’, ‘L4’ and ‘H3’, ‘H4’ levels. While day trading, traders look for the market to reverse if it hits an ‘L3’ or ‘H3’ level. They would then open a position AGAINST the trend, using a stop loss somewhere before the associated ‘L4’ or ‘H4’ level. To calculate Camarilla Equation levels use the calculator at the top of this post.
The second way to try day trading with the Camarilla Equation is to regard the ‘H4’ and ‘L4’ levels as ‘breakout’ levels – in other words to go WITH the trend if prices push thru either the H4 or L4 level. This essentially covers all the bases – Day Trading within the H3 and L3 levels enables you to capture all the wrinkles that intraday market movement throws up, and the H4 – L4 breakout plays allow the less experienced trader to capitalise on relatively low risk sharp powerful movements.
How to Trade based on Camarilla Pivot Points?
Look at the opening price for the stock/futures/commodities/currency.
Scenario 1
Open price is between H3 and L3
For Long
Wait for the price to go below L3 and then when it moves back above L3, buy. Stoploss will be when price moves below L4. Target1 – H1, Target2 – H2, Target3 – H3
For Short Sell
Wait for the price to go above H3 and then when the price moves back below H3, sell. Stoploss will be when price moves above H4. Target1 – L1, Target2 – L2, Target3- L3
Scenario 2
Open price is between H3 and H4
For Long
When price moves above H4, buy. Stoploss when price goes below H3. Target – 0.5% to 1%
For Short Sell
When the price goes below H3, sell. Stopless when prices moves above H4. Target1 – L1, Target2 – L2, Target3- L3
Scenario 3
Open price is between L3 and L4
For Long
When price moves above L3, buy. Stoploss when price moves below L4. Target1 – H1, Target2 – H2, Target3 – H3
For Short Sell
When the price goes below L4, sell. Stoploss when price moves above L3. Target – 0.5% to 1%
Scenario 4
Open price is above H4
For Long
Buying is not suggested in such scenarios.
For Short Sell
When the price goes below H3, sell. Stoploss when price moves above H4. Target1 – L1, Target2 – L2, Target3- L3
Scenario 5
Open price is below L4
For Long
When the price goes above L3. Stoploss when price moves below L3. Target1 – H1, Target2 – H2, Target3 – H3
For Short Sell
Short Selling is not suggested in such scenarios
Camarilla Pivot Points Trading Example
Let’s calculate Camarilla Pivot Points for NSE Nifty on 16th May 2016. We need to enter the High,Low,Close levels of 13th May 2016. See the screenshot below for the calculation:
On 16th May, Nifty opened at 7831.20 which is between H3 and L3. So its fits into the scenario 1 above. Now, at 10:58 AM (approx) Nifty Price went below L3 (7788.28). So we have to wait till it moves back above L3 and take a Buy position. At 11:04 AM it gives a Buy SignalStoploss would be L4 (7761.66) and target would be H1,H2 and H3. If you observe the below chart all the targets were met later in the day, while Stoploss was never hit. You may do partial profit booking at each of the target levels.
Try this yourself on different Stocks and Commodities and you will be astonished by the accuracy of this system. Let us know if there are any question in the comments section.
No comments:
Post a Comment