Good Trading requires the Best Charting Tool!Trading with Camarilla Pivots is highly fruitful. Camarilla Pivots is a powerful tool for identifying key support and resistance levels. Let’s explore this powerful tool and also learn how to incorporate it into your trading strategy.
What are Camarilla Pivots?
Camarilla Pivots is a powerful technical analysis tool that enables traders in determining key areas of support and resistance with accuracy. Traders can use the tool for all financial instruments, such as stocks, Forex, or commodities.
A professional trader named Nick Scott introduced Camarilla Pivots in the 1980s. The high, low, and closing price of the previous day goes into the formula to calculate pivots. The formula in turn gives different levels of support and resistance which Scott referred to as Pivots.
Camarilla Pivots calculates eight levels using the formula. However, four key levels are:
- H5 (the highest level of resistance)
- H4 (the second highest level of resistance)
- L5 (the lowest level of support)
- L4 (the second lowest level of support)
Trading with Camarilla Pivots
Trading with Camarilla Pivots refers to identifying key support and resistance levels and then using these levels to enter or exit trades in financial markets. Here are a few steps you can follow for trading with Camarilla Pivots.
1. Firstly, calculate the eight Camarilla Pivots using the formula:
- R1 = C + ((H-L) * 1.1 / 12)
- R2 = C + ((H-L) * 1.1 / 6)
- R3 = C + ((H-L) * 1.1 / 4)
- R4 = C + ((H-L) * 1.1 / 2)
- S1 = C – ((H-L) * 1.1 / 12)
- S2 = C – ((H-L) * 1.1 / 6)
- S3 = C – ((H-L) * 1.1 / 4)
- S4 = C – ((H-L) * 1.1 / 2)
Where:
C is the previous trading day’s closing price
H is the previous trading day’s highest price
L is the previous trading day’s lowest price
2. Among eight pivots, the R3, R4, S3, and S4 are the most significant levels. The next step is to analyze price action around these key levels of support and resistance.
3. When you observe that the price approaches a key support or resistance level and then bounces off it, it means this is a crucial level. It indicates a continuation of the trend. Therefore, you can follow the trend. However, if the price breaks through a key level, it may indicate an upcoming reversal of the trend. Therefore, you can go short or long accordingly.
The wrap-up
Trading with Camarilla Pivots is advantageous for traders because it enables them to identify key support and resistance areas with precision. You can use these key areas to ride the trend or enter trades upon the reversal of trends. However, it is important to note that no technical analysis tool should be used in isolation. Therefore, use other technical indicators for confirmation of trends instead of acting solely on Camarilla Pivots.
We loved Marwood Research’s course “Candlestick Analysis For Professional Traders“. Do you want to follow a great video course and deep dive into 26 candlestick patterns (and compare their success rates)? Then make sure to check this course!