Understanding Camarilla Levels
The heart of the Camarilla Trading Strategy lies in the calculation of pivot points and the subsequent derivation of support and resistance levels. These levels are vital in understanding potential price movements and finding strategic entry and exit points for trades.
To compute the Camarilla levels, traders use the previous day's high, low, and closing prices. The central pivot point (PP) is determined by the formula:
PP = (Previous High + Previous Low + Previous Close) / 3
From the central pivot point, the following support (S1, S2, S3) and resistance (R1, R2, R3) levels are calculated:
S1 = PP - (High - Low) * 1.1 / 12
S2 = PP - (High - Low) * 1.1 / 6
S3 = PP - (High - Low) * 1.1 / 4
R1 = PP + (High - Low) * 1.1 / 12
R2 = PP + (High - Low) * 1.1 / 6
R3 = PP + (High - Low) * 1.1 / 4