The King of Camarilla Pivots

The King of Camarilla Pivots

An air of mystery surrounds the Camarilla Pivots. However, the method for applying this trading approach is quite simple. To learn more about the Camarilla Pivots, a.k.a. Camarilla Points, watch the video or continue reading below:

First, why is there an air mystery surrounding the Camarilla Pivots? A likely culprit is the meaning behind the word Camarilla. It originates from Spain and refers to an “advisor group for the king”.  Exactly who the King might be is unclear, although one possibility would be Nick Scott who introduced the concept in the late eighties.

However, a more likely candidate for being the King would be last sessions closing price, the price range or a combination of the two. Why? Because in a nutshell, Camarilla levels are all based on the last sessions range and the position of the close.

The Camarilla Formula

The Camarilla levels are calculated by subtracting / adding yesterday’s range from / to the prior close. The formula also applies a slightly expanded range (factor of 1.1) and a sequence of numbers (2, 4, 6 and 12) that determine how far removed from the close the support / resistance levels are located:

Resistance levels

R5 = (High / Low) * Close

R4 = Close + Range * (1.1)/2

R3 = Close + Range * (1.1)/4

R2 = Close + Range * (1.1)/6

R1 = Close + Range * (1.1)/12

Support levels

S1 = Close – Range * (1.1)/12

S2 = Close – Range * (1.1)/6

S3 = Close – Range * (1.1)/4

S4 = Close – Range * (1.1)/2

S5 = (Close – (R5 – Close))

Sideways vs. Directional Setups

To distinguish between range and directional setups, we’re looking to see if open lies within, or outside the third support (S3) / resistance (R3) levels. A market that opens within the S3/R3 area is considered “range bound” whereas an open above / below this area will have a directional bias.

Accordingly, we’ve added red and green plots to highlight the importance of the 3rd support / resistance levels. To improve the visibility of the regular open, we furthermore display a 1 min. opening range for the regular session in a golden plot (applying our premium Opening Range indicator).

Camarilla Points vs. Regular Open

Camarilla Pivots Reversal Setups

If a market opens within the S3/R3 area, one may consider reversal setups that intersect with the daily Camarilla S3/R3 and S4/R4 points. The below 5 min chart for the NQ contract, displays a short reversal opportunity at the first intersection with the R3 level, as identified by our premium Auction Bars indicator. Although this setup failed, another short reversal opportunity presented itself at the R4 level shortly thereafter. This move went all the way down to the S4 level at which point, a bullish reversal setup was spotted. The bullish reversal pattern would have been a good exit point for the short position and possibly, a long re-entry opportunity.

The King of Camarilla Pivots

Camarilla Pivots Directional Setups

To consider directional trades, the market has to open outside the S3/R3 levels. If the market opens above R3, there’s a bullish bias whereas an open below S3 indicates a bearish scenario. In both cases, the sweet-spot for directional trades is when the market retraces back towards the S3/R3 area.

The King of Camarilla Pivots

In the above example, we see a 5 min NQ chart where a regular open below the S3 level indicating a bearish market. Once the market retraced back above the S3 level, the Auction Bars identified a short reversal opportunity consistent with the bearish bias. The market then went on to test support at the regular open and prior low levels which would have been favorable exit opportunities.

A bullish scenario can be viewed below, using a 5 min chart from the 6E contract with a regular open above the R3 level. This indicates a bullish bias and once the market retraced back below the R3 level, the Auction Bars identified a long reversal pattern consistent with the bullish bias. Although the bullish move turned out to fizzle out, two profitable trades would have been with proper trade management.

The King of Camarilla Pivots

Conventional Pivots vs. Camarilla Pivots

Whereas the daily Camarilla Point indicator applies yesterday’s close as the main pivot, the conventional daily pivot calculation divides the prior day high, low and close by 3: (H+L+C)/3. In addition to a Pivot Range, five (5) major support / resistance levels are then found above and below the main pivot.
 
As with the daily Camarilla Point indicator, the support / resistance levels are calculated by setting yesterday’s range in relation to the main pivot. For example, the distance between the first support (S1) and resistance (R1) levels, equals the prior day range. When the market is trading in this area, one may consider it as “range bound”.

Likewise, a break beyond the second traditional pivot support / resistance levels (R2/S2), is indicative of a trending scenario. However, caution applies when entering directional positions at these levels. The reason is that the distance from the main pivot to the R2/S2 levels equal the prior day trading range measured from the main pivot. Generally, a significant move is required to break past the prior day range and consequently, R2/S2 will often mark the high / low point of the session.

The King of Camarilla Pivots

Conclusion

One may use the daily Camarilla Points in both sideways and trending scenarios, i.e. for reversal and breakouts setups. If the market opens between the S3 and R3 levels, one may consider reversal setups when prices to interact with the S1/R1, S2/R1 and S3/R3 Camarilla Point levels.

If the market opens outside the S3 and R3 levels, one may consider breakout scenarios once prices retrace back to the area between the S3 and R3 levels.

Other than the Camarilla Pivots Daily and traditional Pivots Daily indicator, we also offer weekly, monthly and N-monthly versions. Additionally, the session tools category features Daily Rolling Pivots, the Opening Rage, Range Projections Daily, Current Day TWAP and Current Day VWAP indicators.

More information on the Camarilla Pivots Daily indicator for NinjaTrader 8 is available via link below: