From the November 01, 2012 issue of Futures Magazine • Subscribe!

Trading stocks with Camarilla pivots

Professional traders always are in search of key levels that either repel price or, after trading through it, accelerate price action in a predictable direction. The Camarilla pivot point trading strategy is a technique that has an astounding accuracy in both regards, with particularly reliable performance for day-trading equities. Camarilla pivot points were discovered in 1989 by Nick Scott, a successful bond trader. The basic thesis for this strategy is a common one: That price, as most time series, has a tendency to revert to its mean, right up until the point it doesn’t.

As compared to classic pivots where traders look for Resistance 1 and Support 1 levels, the most important levels for the Camarilla pivot point variation are the third and fourth levels. Examples of each level, along with what might be considered an appropriate trade action, are shown here:

Level Price Action
Resistance 4 1422.82 Long breakout
Resistance 3 1419.16 Go short
Resistance 2 1417.95  
Resistance 1 1416.73  
Support 1 1414.29  
Support 2 1413.07  
Support 3 1411.86 Go long
Support 4 1408.20 Short breakout

Camarilla pivot point calculations are rather straightforward. We need to input the previous day’s open, high, low and close. The formulas for each resistance and support level are: 

  • R4 = Close + (High – Low) * 1.1/2
  • R3 = Close + (High – Low) * 1.1/4
  • R2 = Close + (High – Low) * 1.1/6
  • R1 = Close + (High – Low) * 1.1/12
  • S1 = Close – (High – Low) * 1.1/12
  • S2 = Close – (High – Low) * 1.1/6
  • S3 = Close – (High – Low) * 1.1/4
  • S4 = Close – (High – Low) * 1.1/2

The calculation for further resistance and support levels varies from this norm. These levels can come into play during strong trend moves, so it’s important to understand how to identify them. For example, R5, R6, S5 and S6 are calculated as follows: 

  • R5 = R4 + 1.168 * (R4 – R3)
  • R6 = (High/Low) * Close
  • S5 = S4 – 1.168 * (S3 – S4)
  • S6 = Close – (R6 – Close)

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