Camarilla Equation And Methodology

gtatix

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Your views and comments on this are appreciated. I edited and retyped most of this material. It was available on the web. Feel free to make any comments. It is NOT my system/methodology but I have read about the Camarilla equation and trading method as being a "sure thing" so to speak. You be the judge:


CAMARILLA EQUATION

History
Discovered in 1989 by Nick Stott - a successful bonds trader - the Camarilla equation quite simply expounds the theory that markets - like most time series - have a tendency to revert to the mean. In other words, when markets have a very wide spread between the high and low of the day before, they tend to reverse and retreat back towards the previous day's close. This suggests that today's intraday support and resistance can be predicted using yesterday's volatility. [This doesn't sound like any sort of unbelievable revelation to me but I put it up here as per some reading I have done into it. There are some mighty claims surrounding its potential.]


THE ALLEGED EQUATION*
H4 = [1.1*(H-L)/2]+C
H3 = [1.1*(H-L)/4]+C
H2 = [1.1*(H-L)/6]+C
H1 = [1.1*(H-L)/12]+C

L1 = C-[1.1*(H-L)/12]
L2 = C-[1.1*(H-L)/6]
L3 = C-[1.1*(H-L)/4]
L4 = C-[1.1*(H-L)/2]


H* = Previous Day's high
L* = Previous Day's low
C = Previous Day's Close
*ALLEGED BECAUSE I FOUND IT ON THE WEB I DID NOT DEVISE IT
H* & L* ARE SUCH LETTERS ALONE - NO NUMBER FOLLOWING LIKE H4 OR L3 ETC


Trading with the Camarilla Equation
The Camarilla Equation involves trading both with and against the trend using simple rules based around price penetration of the L3 and L4 levels at the bottom of the days range, or the H3 and H4 levels at the top of the day's range. It relies on entering and exiting trades with the backing of major support or resistance. The positioning of these levels are determined by the equation. To use the Camarilla Equation, we need yesterday's open, high, low and close. The calculation then gives us 8 levels of intraday support and resistance. There are 4 of these levels above and 4 levels below yesterday's close. See equations above and charts below.

The important levels to note are the L3 and H3 levels, where you may expect a reversal to occur, and the L4 and H4 levels that shows you where a major breakout has been confirmed. How you enter a trade depends on the way the market opens.

HOW TO APPLY THE NUMBERS TO A TRADE
This applies to long or short trades – buying or selling. If the market opens between the L3 and H3 levels – below H3 and above L3 - wait for the price to approach either of these two levels. Whichever it hits first - L3 or H3 - determines your trade.

If the HIGHER – H3 - level is hit; go SHORT - against the trend - with the expectation that the market is about to reverse. Some traders recommend using the higher – H4 - level as your stoploss point, as a penetration up thru the H4 level actually shows that a major breakout may be under way.
A security consideration is to wait for price to bounce back down inside the H3 level before entering the trade. The logic here is that you will actually be trading with the – short-term – trend.
A LONG position is the opposite scenario: If the LOWER – L3 – level is hit; go LONG. In this case you could use the lower – L4 – level as your stoploss. To apply a safer trade here; wait for the price to come back up inside the lower L3 level, before going LONG.
IF the market opens outside the L3 or H3 levels
This scenario involves waiting for the market to move back up through the L3 level or down through the H3 level. In this case, you will be trading with current short term trend. Your stoploss could be the L4 or H4 levels if your account allows it or a lesser level based on current results while following this system. This is something that needs further observation to tweak. Taking profits for this system was not included with this document. I cannot suggest a profit level other than to base it on any other intraday profit level which appears viable based on current data. Using trailing stops after a 30 or 40 pip profit seems a good place to start with more volatile markets.
Research shows that these reversals from L3 and H3 happen as often as 4/5 times – 80% - during intraday trading.
Trading a breakout – L4 or H4 breached
If price rises above – or breaks through - the H4 level – go LONG – BUY
If price drops below – or breaks through – the L4 level – go SHORT – SELL
I also found these equations with regards to this equation. I know nothing about them other than what they are – again – allegedly for:
HL5 = (hi/lo)*close
HL4 = ( ((hi/lo)+0.83)/1.83 ) *close
HL3 = ( ((hi/lo)+2.66)/3.66 ) *close
LL5 = close - (HL5-close)
LL4 = close - (HL4-close)
LL3 = close - (HL3-close)
This is all I have on this -apparently - elusive system. My thoughts are that the concept is in no way ingenious. The concept is practical and moderately – out-of-the-box. It is clearly similar to pivot points with a different approach as per the calculations. Only testing will tell if it actually works. This is where you come in. I have dug-up the information and will do what testing I can. I ask that you do what testing you can and report your findings here.
 
It looks interesting , i am looking at the Equations and wondering about the numbers which been used , Like in "H4 = [1.1*(H-L)/2]+C" , 1.1 multiplied , why 1.1 ? i could not figure it out , and why divided by 2 ? i don know .

i want to ask you , when you did say that "if the market opens between L3 and H3" , which market r session are you talking about ? you mean when London or Tokyo session starts ?

Thanks for sharing ..
Regards ,
 
I don't like the arbitrary 1.1 in the formula. Apparently, the formula was being sold for $99. :whistling (see related thread "Camarilla Equation + Calculator")

Instead, I prefer (HLC) Floor Pivots and sometimes Fibonacci Pivots.
 
Formula calculations; Market starts

It looks interesting , i am looking at the Equations and wondering about the numbers which been used , Like in "H4 = [1.1*(H-L)/2]+C" , 1.1 multiplied , why 1.1 ? i could not figure it out , and why divided by 2 ? i don know .

i want to ask you , when you did say that "if the market opens between L3 and H3" , which market r session are you talking about ? you mean when London or Tokyo session starts ?

Thanks for sharing ..
Regards ,
I am sorry but I didn't devise the methodology or formulae. If the formula is correct it is not essential to know why you multiply by 1.1 for example. You usually divide numbers by two when you are taking an average. 1.1 is the same as 1 and 1-tenth. I suppose this allows for a 10 percent increase - or decrease - in the line level to allow for false breakouts etc. This is only a guess. Market opening is a term rather than an actual moment. I would suggest that the "opening" be deemed by the user. Much the same as pivot points are calculated, you could do the same with these "pivot points." If you are trading the USD you may have your points based on openings/closings of 4pm EST or 5pm EST. Some people use midnight. It may be that all your pivots are based on 24:00 GMT which is Greenwich Mean Time as per the time in Greenwich England. Perhaps someone else could comment on pivot point times.
 
Hi all,
I am new to this forum, its really happy to see a whole lot of like minded ppl here.....

Dose anyone have any idea about Camarilla {b} Equation
 
I am sorry but I didn't devise the methodology or formulae. If the formula is correct it is not essential to know why you multiply by 1.1 for example. You usually divide numbers by two when you are taking an average of two numbers. In this equation, dividing (H-L) by 2 would give a mid-point for that high and low. 1.1 is the same as 1 and 1-tenth. I suppose this allows for a 10 percent increase - or decrease - in the line level to allow for false breakouts etc. This is only a guess. Market opening is a term rather than an actual moment. I would suggest that the "opening" be deemed by the user. Much the same as pivot points are calculated, you could do the same with these "pivot points." If you are trading the USD you may have your points based on openings/closings of 4pm EST or 5pm EST. Some people use midnight. It may be that all your pivots are based on 24:00 GMT which is Greenwich Mean Time as per the time in Greenwich England. Perhaps someone else could comment on pivot point times.

correction/clarity of this post.
 
Pivots - Camarilla - Regular - Woodie

I don't like the arbitrary 1.1 in the formula. Apparently, the formula was being sold for $99. :whistling (see related thread "Camarilla Equation + Calculator")

Instead, I prefer (HLC) Floor Pivots and sometimes Fibonacci Pivots.

I see that there have been a few posts as to where to find pivots or levels for Camarilla. Here is another. READ the site - it is brief. You can do more than just the Camarilla's here:

Pivot Point Calculator
 
been back testing this on eur/usd and its sent me the wrong direction everytime so far. though it is heady times for that cabel, anyone suggest another instrument to apply it to??
 
Hi Everyone!
here for the first time. would like to know about trading breakouts and breakdowns above H4 and below L4. how do you set targets? also would like to know - can a trade initiated for day trade using camarilla H4 breakout or L4 breakdown be kept through to the next day?
kindly enlighten with your thoughts.
cheers//mvp
 
I am just now starting to use Camarillas. They seem to be quite accurate with the S&P Minis
 
been back testing this on eur/usd and its sent me the wrong direction everytime so far. though it is heady times for that cabel, anyone suggest another instrument to apply it to??

hi

how are you getting on with camarillas? what other indicator do you use to determine that the price has actually reversed ? i would suggest perhaps a 10 period moving average although ive not yet backetested (as you cannot backtest camarillas ) any feedback welcome
 
how are you getting on with camarillas?

Good luck getting a reply: his most recent post in this forum was nearly 4 years ago. :confused:

what other indicator do you use to determine that the price has actually reversed ?

Personally, I determine that directly from prices, not indirectly from indicators reflecting prices. I find it no more difficult and distinctly more realistic and accurate. Just my perspective. :eek:
 
I don't like the arbitrary 1.1 in the formula. Apparently, the formula was being sold for $99. :whistling (see related thread "Camarilla Equation + Calculator")

Instead, I prefer (HLC) Floor Pivots and sometimes Fibonacci Pivots.

and only 89 left ...........:cool:
 
my own formuale for targets for breakouts or breakdowns are
H5 = H4+(H4-H3)
L5 = L4-(L3-L4)

I don't use L1,2, H1,2 but do use central PP: (H+L+C)/3
 
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