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Camarilla Points

Trading In Multiple Time Frames

Here’s how you can use camarilla points to trade in multiple time frames.

Pivot points are a common trading tool, especially among floor traders. Camarilla points are similar to pivot points, but there are some differences. The concept is based on the assumption that markets fluctuate about a point of balance (referred to as a pivot). Eight basic points (levels of prices) are calculated by camarilla formulas for a time frame of interest. The inputs are the previous trading session’s high, low, and close for the time frame you choose.

Camarilla points are best suited for range trading, but are ill suited for trading runaway breakouts. I will provide examples of such situations later on. The backtesting of trading strategies based on the application of camarilla points shows that the time of exposure to risk created by market uncertainties is reduced.

In this article I will show you how to apply the camarilla points to your trading on various time frames. “S” stands for “support” and “R” stands for “resistance”:

• Levels S1, S2, S3, and S4 are considered basic support areas
• Levels R1, R2, R3, and R4 are considered basic resistance areas
• Levels S5 and R5 are added to handle breakouts
• Levels S3, S4, R3, and R4 are considered the most important in a trading plan.

Most price congestion is going to happen in these support and resistance areas. The levels important in trading breakouts are R4 in conjunction with R5, and S4 in conjunction with S5. However, breakouts more often than not are better handled when using Elliott wave analysis (wave count).

FIGURE 1: 25-DAY TIME FRAME. Here, [1] and [3] represent sell signals and [2] and [4] represent buy signals

…Continued in the March issue of Technical Analysis ofStocks & Commodities

Excerpted from an article originally published in the March 2013 issue of Technical Analysis ofStocks & Commodities magazine. All rights reserved. © Copyright 2013, Technical Analysis, Inc.