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

Trading stocks with Camarilla pivots

Now, let’s look at an example of a short breakout trade. Our logic is the mirror image of the long breakout entry. A short trade is set up when price opens between Support 3 and Support 4. We will sell if price continues below Support 4, with profit targets at Support 5 and Support 6 and a stop loss placed five ticks above Support 3.

Our example will be based on Exxon Mobil. On March 27, Exxon had the following: Open, 87.13; high, 87.25; low, 86.54; close, 86.62. Given these values, our Camarilla pivot point support levels are: 

  • S3 = 86.42; S4 = 86.23; S5 = 86.00; S6 = 85.91  

This means our strategy for March 28 is to sell at 86.23 if the market opens below 86.42 but above 86.23. Our profit targets will be 86.00 and 85.91. The stop loss is five ticks above 86.42, or 86.37. On March 28, Exxon opened at 86.30 and our short breakout entry was triggered at 9:40 a.m. Both profit targets were hit at 10:30 a.m. (see “Short profits,” below).

Camarilla pivot points are simple but versatile trading tools. They help to find the upper and lower trading ranges for a stock on any particular day. Patience and discipline are key. Traders must wait for the prices to be hit before taking action. Once a trader is comfortable with the core technique, further refinement is possible by combining this strategy with the relative strength index and moving averages. 

Bramesh Bhandari trades the Indian stock market and teaches technical analysis. Bramesh can be reached via email at bhandaribrahmesh@gmail.com.

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