Camarilla Equation

Discovered while day trading in 1989 by Nick Stott, a successful bond trader in the financial markets, the SureFireThing ‘Camarilla’ equation uses a truism of nature to define market action – namely that most time series have a tendency to revert to the mean. In other words, when markets have a wide spread between the high and low the day before, they tend to reverse and retreat back towards the previous day’s close. The SureFireThing Camarilla Equation uses some complicated mathematics to pluck 8 levels out of thin air, using nothing more than yesterday’s open, high, low and close. These levels are, frankly, astounding in their accuracy as regards day trading, even to seasoned traders, who know all about support and resistance, pivot points and so on. SureFireThing.com supply their online SFT Camarilla Equation calculator for day trading at probably the lowest cost available anywhere. There are a number of other commercial sites purporting to supply a ‘Camarilla’ equation, but we cannot vouch for any of them, as none would give us a free trial! There are also various free websites offering ‘Camarilla’ Equation calculations, usually based on fairly standard pivot points and so on. None of these produces the same results as the SureFireThing version, and trading with them must therefore be regarded as ‘pot luck’.

SFT Camarilla Equation Levels

The SFT Camarilla Equation produces 8 levels from yesterday’s open, high, low and close. These levels are split into two groups, numbered 1 to 4. The pattern formed by the 8 levels is broadly symmetrical, and the most important levels are the ‘L3′, ‘L4′ and ‘H3′, ‘H4′ levels. While day trading, traders look for the market to reverse if it hits an ‘L3′ or ‘H3′ level. They would then open a position AGAINST the trend, using a stop loss somewhere before the associated ‘L4′ or ‘H4′ level. The SFT theory suggests setting stoplosses that appear to you the trader to be prudent, and to not even open the trade until it has penetrated the level in the ‘right’ direction, i.e. demonstrated that it has found resistance (or support). In the case of the higher H3 level, this would mean that price had already reversed and pushed back down thru the level, heading south.

The second way to try day trading with the Camarilla Equation is to regard the ‘H4′ and ‘L4′ levels as ‘breakout’ levels – in other words to go WITH the trend if prices push thru either the H4 or L4 level. This essentially covers all the bases – Day Trading within the H3 and L3 levels enables you to capture all the wrinkles that intraday market movement throws up, and the H4 – L4 breakout plays allow the less experienced trader to capitalise on relatively low risk sharp powerful movements. Here’s what it looks like in action:

Trading with the SureFireThing Camarilla Equation

Trading with the SureFireThing Camarilla Equation is discretionary – although the main ‘philosophy’ of the system seems mechanical, a reasonable amount of experience and knowledge is needed to trade the equation well. Basically, you give the Equation yesterday’s open, high, low and close. The Camarilla Equation will then give you 8 levels of intraday support and resistance. There are 4 of these ‘L’ levels above yesterday’s close, and 4 below. Below the close they are numbered L1, L2, L3 and L4, and above the close H1, H2, H3 and H4. The important levels to note are the ‘H3′ and ‘L3′ levels, points where significant reversals are likely, and the ‘H4′ and ‘L4′ levels which are where breakouts have a tendency to start. How you specifically enter a trade depends to some extent where the market opens.

Market Open BETWEEN ‘H3′ and ‘L3′

If the market opens BETWEEN the H3 and L3 levels, you must wait for price to approach either of these two levels. Whichever level it hits first gives you your first trade.

If the H3 level is hit, the idea is that you go SHORT (against the previous trend) in the expectation that the market is about to reverse, with a stoploss point somewhere between the H3 and H4 levels (if it his H4, chances are it’s going to breakout bigtime upwards, so you want your stop to be before that!).

SureFireThing, suggest that you wait for price to bounce back down into the H3 level again before entering the trade, as you will therefore be technically trading WITH the short term trend. You need afair amount of experience for this style of trading. The opposite, of course applies if the LOWER L3 level is hit first – wait for it to come back up, then go LONG.

Market Open OUTSIDE ‘L3′ and ‘H3′

In this case, you wait for the market to retreat back thru the L3 or H3 level – you will then be trading WITH the trend, and once again, put a stop loss somewhere before the matching H4 or L4 level. Taking profits is down to you – trailing stops seem popular. You need to be aware that you WILL want to take profits at some time during the day, because the market is unlikely to ‘behave’ and stay right-sided for your trade. These reversals from H3 and L3 appear to happen fairly frequently during intraday trading.

Trading Breakouts with the SureFireThing Camarilla Equation

The L4 and H4 levels are actually phenomenally good ‘breakout’ levels themselves. If price pushes up thru the higher H4 level, the chances are it is going to keep on running that way. Our own research indicates that in such a breakout on the S&P, a move of up to 7 points can be expected, which is, as you will understand, a VERY significant proportion of a typical day’s volatility.

Running with the breakout

As the original equation specified no levels outside L4, knowing when to exit the trade becomes highly subjective. This is where SureFireThing’s ‘{b}’ version of the Equation becomes useful, as the ‘profit target’ of the {b} version seems, in our experience, to be quite a good level to watch for the move to falter. Taking profits here might often be a prudent course of action, as once your money is off the table, the worst that can happen is that you earn some interest on it! Stoplosses, of course are also subjective – we find on the S&P that 2 points or less is usually sufficient. Once again, SureFireThing’s ‘{b}’ version supplies a suggested stoploss, which seems to actually be quite a good suggestion in our experience.

In this example from the FTSE (The UK equivalent of the S&P) on 1st July 2003, the breakout is clearly signposted downwards, as is the suggested profit target. This particular breakout uses the levels from the {b} version of the equation, which usually correspond quite well to L4.

Putting it all together

They say a picture is worth a 1000 words – below is a chart from 21st May 2003, showing what levels the Equation predicted (thanks to SureFireThing.com for permission to reprint this image) and what actually happened on that day.

A Classic Day.

As you can see, the market respected the H3 and L3 levels very well, and gave an opportunity to make a double digit profit on the day. Our research leads us to beleive that such opportunities are not, in fact, rare, but rather the usual state of affairs. Once again, thanks to SureFireThing for permission to reprint this image.

Harrytrader about Camarilla

The problem of Camarilla is the same problem than with all methods based on pure numerology. I will take last session example (see picture below):
SC3 in my notation means Support Camarilla Level 3 (I know cama formula since more than two years now and gave access to it freely a few months ago and said that it was very easy to find cama formula by giving the clue that it was pivot’s like formula and that’s what some people did ). It was at 10419 and SC4=10362 which is the stop level. Well it worked on that day but on other days it will go to SC4 burst your stop and rallyes or it will go to SC5. And of course you don’t know the target either. Now I don’t find it useless and combined with my model it can give a quick glance on where to operate optimally. On that day my model expected a bottom on the blue consolidation line down to the extreme limit of bulls and bears that is to say the crossing of the two lines (projection trendline in green and consolidation line in blue) down at 10400 and I know also that sometimes it is truncated by one point before at 10411 which often co?ncide with the expectancy of Fib levels on that day 10411 also (see right chart). Since I can hesitate between 10400 and 10411 the 10419 of Cama which is higher can act as a confirmation level. And unlike blind cama followers I won’t put a buy limit at 10419 and a stop at 10362 but wait until my 10411 level is touched and then put a buy stop higher on Cama with a tight stop based on my levels and not on SC4 level which is much higher a risk.

http://www.elitetrader.com/vb/showthread.php?threadid=26130&perpage=6&pagenumber=5

Camarilla Indicators

Metatrader 4
cam_H1_H5_Historical.mq4
cam_L1_L5_Historical.mq4
Camarilla.mq4
Camarilla-MT04-Ind_MBB.mq4
Camarilla Pivots Script.mq4
camarilladt7v1.mq4
camarilladt7v11.mq4
camarilladtHistorical_V4.mq4