Camarilla pivot points were developed in the late 1980s by Nick Scott, a bond trader who sought a more precise method for identifying intraday support and resistance levels. Unlike traditional pivot points, which use a single formula for support and resistance levels, the Camarilla equation generates multiple levels that allow traders to identify potential breakout and reversal zones with greater accuracy.
Purpose and Use in Trading
Camarilla pivot points are a set of mathematical calculations used to determine key levels of support and resistance based on the previous day’s high, low, and closing prices. They are commonly used by day traders and short-term traders to identify market turning points and breakout opportunities.
Reversal Trading: If the price reaches S3 or R3, traders may look for a reversal back towards the pivot point.
Breakout Trading: If the price moves beyond R4 or S4, it may indicate a strong breakout, signaling a continuation of the trend.
Risk Management: These levels help traders set stop-loss and take-profit levels more effectively, reducing risk exposure.
By combining Camarilla levels with other indicators like volume and trend analysis, traders can improve their ability to forecast market movements and make more informed trading decisions.