Camarilla Equation

# Camarilla Equation

The Camarilla Equation and the formula of calculation of support and resistance levels were developed by Nick Scott in 1989. Initially, this technical tool was applied in intraday trading on the bond market, but later it was used in currency futures and FX spot trading.

#### Calculation

P = (yesterday_high + yesterday_low + yesterday_close) / 3;

R1 = (2 * P)-yesterday_low;

S1 = (2 * P)-yesterday_high;

R2 = P-S1 + R1;

S2 = P-R1 + S1;

R3 = (2 * P) + (yesterday_high-(2 * yesterday_low));

S3 = (2 * P) - ((2 * yesterday_high)-yesterday_low);

R4 = (3 * P) + (yesterday_high-(3 * yesterday_low));

S4 = (3 * P) - ((3 * yesterday_high)-yesterday_low), where

P - Pivot Level, yesterday_high - previous day's high price, yesterday_low - previous day's low price, yesterday_close - previous day's closing price, R1 .. R4 and S1 .. S4 - support and resistance levels, respectively.

Camarilla Pivots are similar to the classic pivot points defining reversal, resistance and support levels. They are Pivot Points, Woodie's Pivots, DeMark's Pivots, intraday Fibonacci Pivots, etc. However, Camarilla Pivots' advantage is in identifying intraday extreme price changes. As a consequence, Camarilla Equation works fine for M15, M30, rarely for H1 time frames.

The central line of Pivot Point is a point of rotation. During an average Forex trading day with a lack of trend movement; the price will fluctuate around this point, and when there is long distance, it will revert to the pivot point to the end of the trading day.

There is also a 'buffer zone' between R1 and S1 levels where the price is located most of the time. The best option is to work on trade rebound from these support/resistance levels. You may utilize any trade entry filters, but often it is enough to understand the overall direction of the movement in order to select the appropriate level to enter: either R1 or S1.

The breakdown of these levels indicates that the price can reach the level of R2 and S2, but it should be understood that the further the price decline from the rotation point within the day, the higher the likelihood of its reverting back to the pivot point.

Price reversals occur at R2, R3 and S2, S3 levels. While opening position from these levels, you should place your stop loss at R4 and S4 respectively.

Camarilla Equation is automatically calculated every day on the basis of the previous day's closing price.