The Camarilla Pivot Points provides traders with key support and resistance levels. These levels can be used to help determine entry, stop-loss, and take-profit points.
What is the Camarilla Pivot Points?
The Camarilla Pivot Points defines a change in market sentiment and the overall trend. It pays heed to high, low, and closing prices between the trading days.
Like any form of pivot points, Camarilla was traditionally for equity and futures exchanges. Now, it is used with forex, cryptocurrencies and other markets. Camarilla is often used to find possible support and resistance levels.
There are four support and resistance levels of Camarilla Pivot Points. The calculation of Camarilla is concluded with the help of several derivative formulas. The previous day prices calculate the Camarilla for the current day.
Here what the pattern looks like:
The middle point between the support and resistance levels is mentioned as Pivot. Also, the tighter the support and resistance levels, the more signficant they may be according to some traders.
The equation for the Camarilla is:
- Camarilla for current day = High (previous day) + Low (previous day) + Close (previous day)/3
The equation for the Camarilla of the current day with support and resistance levels:
- First Resistance = Close + (High – Low (previous day))
- First support = Close – (High – Low (previous day))
- Second Resistance = Close + (High – Low (previous day))
- Second support = Close – (High – Low (previous day))
- Third Resistance = Close + (High – Low (previous day))
- Third support = Close – (High – Low (previous day))
- Fourth Resistance = Close + (High – Low (previous day))
- Fourth support = Close – (High – Low (previous day))
The values of each support and resistance levels for the previous day vary.
These equations can help find support and resistance levels, entry, and exit points ahead of time.
Camarilla Pivot Points can be used on any time frame and market, including forex, stocks, commodities, cryptocurrencies, indices and more.
How to use the Camarilla Pivot Points?
The Camarilla Pivot Points indicator can show support and resistance levels, so, it may be wise to be combined with momentum oscillators like the RSI or the Stochastics. For example, the RSI describes a bullish or bearish divergence.
Applying the RSI or any other oscillator with the Camarilla can be used to identify possible long and short trading positions.
For going long, traders identify bullish divergence at S2, S3, or S4 (second, third, and fourth support level). When the price moves upward, buyers initiate the trade and place a stop-loss at the recent swing low. They place take-profits at the next level. For example, buyers who buy at S2 may place a take-profit at S1.
For going short, the trader finds bearish divergence at R2, R3, or R4 (second, third, and fourth resistance level). When the price rallies back, sellers start the trade and set a stop-loss at the recent swing high. They set take-profits at the next level. For example, sellers who sell at R3 may set a take-profit at R2.
One of the key features of the Camarilla is that it can be calculated on any timeframe. Therefore, it can be used for day trading, swing trading, and position traders can apply it on daily, weekly, and monthly charts.
Camarilla Pivot Points trading strategy
Camarilla Pivot Points buy strategy
- The market should be in an uptrend.
- Wait for the price bar to go bullish.
- Enter the trade at S2.
- Set a stop-loss at the recent low.
- Exit the trade at R4.
Camarilla Pivot Points sell strategy
- The market should be in a downtrend.
- Wait for the price bar to go bearish.
- Enter the trade at R2.
- Set a stop-loss at the recent swing high.
- Exit the trade at S4.
Camarilla Pivot Points conclusion
Camarilla Pivot Points can be used on your trading platform charts to help filter potential trading signals as part of an overall trading strategy. The calculations of Camarilla can help traders identify support and resistance levels.
I would prefer to use the majority of technical indicators such as the Camarilla Pivot Points indicator on the 1-hour charts and above. I tend to find that these charts contain less market noise than the lower time frames and thus give more reliable signals for my forex trading strategies. This also means that I spend less time staring at charts and can also set alert notifications to let me know when price has reached certain levels or a particular indicator value has been reached.
The Camarilla Pivot Points indicator is just one indicator amongst thousands. I would not build a trading system alone, but rather combine with other technical indicators such as moving averages, Parabolic SAR, Stochastic Oscillator, RSI, ADX and price action analysis.
Of course, every trading system will generate false signals which is why money management is so important. I would personally be implementing sensible money management and only take traders that give me a favorable risk to reward ratio, ideally of at least 1:3. This means that one losing trade does not wipe out consecutive winners.
The methods of implementing the Camarilla Pivot Points indicator into a trading strategy that are outlined within this article are just ideas. I would always ensure that I have good money management, trading discipline and a trading plan when using any forex strategy.
Furthermore, I would combine multiple technical analysis, fundamental analysis, price action analysis and sentiment analysis to filter all entries. You should trade forex in a way that suits your own individual style, needs and goals.
If you would like to practice trading with the Camarilla Pivot Points indicator, you can open an account with a forex broker and download a trading platform. If you are looking for a forex broker, you may wish to view my best forex brokers for some inspiration.