Intraday Trading Using Camarilla and Advanced Camarilla

Intraday Trading Using Camarilla and Advanced Camarilla By Sourabh Gandhi ([email protected]) What is Camarilla? How it came into existence? Who first thought of trading with this method? Camarilla is a method used for doing intraday trading in various markets like Forex, Equities, Futures, Commodities.. and the list goes on. The Camarilla method of trading was discovered while day trading in 1989 by Nick Stott. Nick Stott is a successful bond trader in the financial markets. Nick Stott invented this method from his interest in Fibbonacci levels and a branch of technical analysis called 'Market Profiling'. He was working as a bond trader back in the 80's, and started to notice that there were regular patterns emerging every day, differing only in scale. After some data analysis he developed the equation for Camarilla.

What is the idea and concept behind this equation? 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 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. It relies on the fact that success in intraday trading requires you to enter and exit trades with the backing of major support or resistance; the positioning of this resistance being determined by the equation. To use the Camarilla Equation, you enter yesterday's high, low and close. The calculation then gives you 8 levels of intraday support and resistance based on pivot point. There are 4 of these levels above pivot point, and 4 below.

What are Simple Camarilla Levels? What are they called? What each level signifies? How to trade using each level? Camarilla Equation produces 8 levels from yesterday's 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. Detailed process is explained below. The another way to day trade 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 through either the H4 or L4 Websites http://pivottrading.50webs.com http://livecharts.50webs.com http://trade2win.weebly.com

http://www.pivottrading.net http://livecharts.awardspace.co.uk http://pivottrading.awardspace.co.uk

Intraday Trading Using Camarilla and Advanced Camarilla By Sourabh Gandhi ([email protected]) 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.

What is the method to calculate the simple camarilla levels? C = Previous Day Close H = Previous Day High L = Previous Day Low H4 = [0.55*(H-L)]+C Websites http://pivottrading.50webs.com http://livecharts.50webs.com http://trade2win.weebly.com


Intraday Trading Using Camarilla and Advanced Camarilla By Sourabh Gandhi ([email protected]) H3 = [0.275*(H-L)]+C H2 = [0.183*(H-L)]+C H1 = [0.0916*(H-L)]+C L1 = C-[0.0916*(H-L)] L2 = C-[0.183*(H-L)] L3 = C-[0.275*(H-L)] L4 = C-[0.55*(H-L)]

How to trade based on Simple Camarilla Levels ? Once the camarilla levels from L4 – H4 are found, trading is done based on the open price of the stock or underlying. Instead of open price, we can also take the WAP (Weighted Average Price) of the first 5 min of market open. Now depending on the open price, we consider below four scenarios: Scenario 1: Open price is between H3 and L3 -

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To enter long position (i.e. To Buy) o Wait for the price to go below L3 and then when it moves back above L3, buy. o Stoploss should be placed when price moves below (L3+L4)/2. o Targets : Target1 = H1, Target2 = H2, Target3 = H3 To enter short position (i.e. To Sell) o Wait for the price to go above H3 and then when it moves back below H3,sell or go short. o Stoploss should be placed when price moves above (H4+H3)/2. o Targets : Target1 = L1, Target2 = L2, Target3 = L3

Scenario 2: Open price is between H3 and H4 -

To enter long position (i.e. To Buy) o Wait for the price to go above H4. As soon as price moves above H4 buy.

Websites http://pivottrading.50webs.com http://livecharts.50webs.com http://trade2win.weebly.com


Intraday Trading Using Camarilla and Advanced Camarilla By Sourabh Gandhi ([email protected])

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o Stoploss should be placed when price moves below (H4+H3)/2. o Targets : Target1 = 0.5%, Target2 = 1%, Target3 = 1.5% To enter short position (i.e. To Sell) o Wait for the price to go below H3. As soon as the price moves below H3, sell or go short. o Stoploss should be placed when price moves above (H4+H3)/2. o Targets : Target1 = L1, Target2 = L2, Target3 = L3

Scenario 3: Open price is between L3 and L4 -

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To enter long position (i.e. To Buy) o Wait for the price to go above L3. As soon as price moves above L3 buy. o Stoploss should be placed when price moves below (L4+L3)/2. o Targets : Target1 = H1, Target2 = H2, Target3 = H3 To enter short position (i.e. To Sell) o Wait for the price to go below L4. As soon as the price moves below L4, sell or go short. o Stoploss should be placed when price moves above (L3+L4)/2. o Targets : Target1 = 0.5%, Target2 = 1%, Target3 = 1.5%

Scenario 4: Open price is above H4 -

To enter long position (i.e. To Buy) o NA. Buying is not suggested in such scenarios. To enter short position (i.e. To Sell) o Wait for the price to go below H3. As soon as the price moves below H3, sell or go short. o Stoploss should be placed when price moves above (H4+H3)/2. o Targets : Target1 = L1, Target2 = L2, Target3 = L3

Scenario 5: Open price is below L4 -

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To enter long position (i.e. To Buy) o Wait for the price to go above L3. As soon as price moves above L3 buy. o Stoploss should be placed when price moves below (L4+L3)/2. o Targets : Target1 = H1, Target2 = H2, Target3 = H3. To enter short position (i.e. To Sell) o NA. Selling is not suggested in such case.



Intraday Trading Using Camarilla and Advanced Camarilla By Sourabh Gandhi ([email protected]) What are Advanced Camarilla Levels ? Advanced Camarilla Equation produces 12 levels from yesterday's high, low and close. These levels are split into two groups, numbered 1 to 6. The pattern formed by the 12 levels is broadly symmetrical, and the most important levels are the 'L3' - 'L6' and 'H3' - 'H6' 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. Detailed process is explained below. The another way to day trade 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 through 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.

What is the method to calculate the advanced camarilla levels? C = Previous Day Close H = Previous Day High L = Previous Day Low H6 = (formula not shared) – Available at (http://www.pivottrading.net) H5 = (formula not shared) – Available at (http://www.pivottrading.net) H4 = [0.55*(H-L)]+C H3 = [0.275*(H-L)]+C H2 = [0.183*(H-L)]+C H1 = [0.0916*(H-L)]+C L1 = C-[0.0916*(H-L)] L2 = C-[0.183*(H-L)] L3 = C-[0.275*(H-L)] L4 = C-[0.55*(H-L)] L5 = (formula not shared) – Available at (http://www.pivottrading.net) L6 = (formula not shared) – Available at (http://www.pivottrading.net)




What is the difference between Simple Camarilla and Advanced Camarilla? The only difference between simple camarilla and advanced camarilla levels is that Advanced Camarilla Levels provide two extra levels on each direction. These two levels on each direction provide the target1 and target2 if trading is performed based on breakout. To put in simple words, if you buy the underlying above H4, Target 1 = H5 and Target 2 = H6. Similarly, if you sell the underlying below L4, Target1 = L5 and Target 2 = L6.

Examples for trading on camarilla levels Example 1: Trading for Reliance on 6th Oct 2010. See the image below for the calculation.

On 6th Oct 2010, The open price for Reliance was 1030. This price is between H3(1027) and H4(1034). The open price falls under Scenario 2. Buy Triggered at H4(1034) (see the image below for intraday chart of Reliance.) Websites http://pivottrading.50webs.com http://livecharts.50webs.com http://trade2win.weebly.com


Intraday Trading Using Camarilla and Advanced Camarilla By Sourabh Gandhi ([email protected]) Stoploss = (H4+H3)/2 = (1027+1034)/2 = 1030.5. Target1 = 0.5% = 1039.17 Target2 = 1% = 1044.34 As seen in the image below, initially stoploss gets hit at 1030.5 and then again buy triggered at 1034. In second trade, Target1 and Target2 both are achieved. Total profit = 1030.5-1034 + 1044.34-1034 = 6.8 = 0.6% profit.




Example 2: Trading for Sun Pharma on 6th Oct 2010. See the image below for the calculation.

On 6th Oct 2010, The open price for SunPharma was 2078. This price is between H3(2070) and H4(2079). The open price falls under Scenario 2. Sell Triggered at H3(2070) (see the image below for intraday chart of Sun Pharma.)




As seen from the image above, short triggered at H3(2070) twice during the day. During first trade, Target1 = L1(2058) and Target2 = L2(2055) got achieved. During second trade, Target1, Target2 and Target3 = L3(2052) got achieved. So profit = 2070 – 2055 + 2070 – 2052 = 53 = 2.6%



Intraday Trading Using Camarilla and Advanced Camarilla By Sourabh Gandhi ([email protected]) Example 3: Trading for TATASTEEL on 7th Oct 2010. See the image below for the calculation.

On 7th Oct 2010, The open price for Tata Steel was 680. This price is between H3(680) and L3(673). The open price falls under Scenario 1. Sell Triggered at H3(680) (see the image below for intraday chart of Tata Steel.)



Intraday Trading Using Camarilla and Advanced Camarilla By Sourabh Gandhi ([email protected]) As seen from the image above, sell triggered at H3(680). Target 1, Target2, Target3 = L3(679) achieved. Profit = 680-673 = 7 = 1.02%. Example 4: Trading for TCS on 7th Oct 2010. See the image below for the calculation.

On 7th Oct 2010, The open price for TCS was 960. This price is between H3(965) and L3(955). The open price falls under Scenario 1. Buy Triggered at L3(955) and then Sell triggered at H3(965) (see the image below for intraday chart of TCS.)




As seen in the image above, first Buy Triggered at L3(955). Target 3 = H3(965) achieved. Again, Sell Triggered at H3(965) (as per Scenario 1). Target 3 = L3(955) achieved. So profit = 965-955 + 965-955 = 20 = 2.07% I have tried to explain few scenarios mentioned here with the help of example. Do some paper trading with this strategy and if this method suits you, you can start real money trading with this strategy.



Intraday Trading Using Camarilla and Advanced Camarilla

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