The Camarilla Pivot Points strategy is a mathematical and psychologically based strategy for trading. It basically is derived from a mathematical equation that uses the average of the high, low and closing prices from the previous trading day. Obviously there are more steps in the math equation, but it is supposed to essentially give you future support and resistance levels for the upcoming day.
If you want the full mathematical equation, here it is nerd:
Fourth resistance (R4) = Closing + ((High -Low) x 1.5000)
Third resistance (R3) = Closing + ((High -Low) x 1.2500)
Second resistance (R2) = Closing + ((High -Low) x 1.1666)
First resistance (R1) = Closing + ((High -Low x 1.0833)
Pivot point (PP) = (High + Low + Closing) / 3
First support (S1) = Closing – ((High -Low) x 1.0833)
Second support (S2) = Closing – ((High -Low) x 1.1666)
Third support (S3) = Closing – ((High -Low) x 1.2500)
Fourth support (S4) = Closing – ((High-Low) x 1.5000)
The reason that I have implemented the Camarilla Pivots into my trading strategy is because what this does is identify pretty clearly support and resistance levels. As well as identifying bullish and bearish zones for the upcoming day, and potential trend reversals or continuation in a trend direction.
Obviously there are a lot of other factors that go into taking a options trade, but these levels give me a good indicator of what I should be looking for at these price points throughout the day. If these levels are in line with the golden goose fibs, daily key levels, or zones that I have on my chart, I know it is important to keep an eye on the price action at that point for either a rejection, or next leg of support.
You will see in purple in my chart below on $SPX that it will give you 8 levels to focus on. When they line up with my key levels on the daily (purple horizontal) you know that it is an important area to focus. Since SPX tested that 4144 level, then rejected, but immediately got support off the 9 EMA and that major daily level of 4140, it was a entry for a call to go long on SPX.
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