Camarilla Equation Levels Strategy For MT4

Camarilla Equation Levels Strategy For MT4

Please note: This strategy was publicly published in the trading community and is free to use. We do NOT make an attempt to decide if this strategy is profitable or not, because we know that the major factors regarding trading results are the skills/experience of the trader who executes the strategy. Therefore, we are mainly explaining the components and rules of the strategy. If applicable, we are highlighting advantages, disadvantages and possible improvements of the strategy.

 

The Camarilla Equation Levels Strategy For MT4 is a trading system focused on establishing key support and resistance areas using three price metrics: high, low, and close. The levels that the Camarilla Equation generates offers excellent price action trading opportunities for traders, particularly for those who do intraday trading. This article details this trading tool with four practical ways traders use it as a trading method.


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What is the Camarilla Equation?

The Camarilla Equation (sometimes referred to as Camarilla Pivot or Camarilla Levels) is a type of pivot point developed by Nick Scott in 1989. It is an "improvement" to the standard pivot point levels and suits the same function of setting boundaries on the chart where traders can base their trades on. These points extend up to eight levels of support and resistance and are automatically plotted on the chart using an MT4 indicator.

 

What is the equation for?

Camarilla Levels are suited for price action trading and are often utilized by pattern day traders. Trading the Camarilla Equation relies on the basic premise that price has a tendency to revert to its mean until it doesn't. Moreover, investors sometimes favor Camarilla Pivots because they are known to provide "tighter levels," and these levels present great countertrend and breakout trading opportunities.

 

Camarilla Pivots Formula

Obtaining the Camarilla levels has a close likeness to the standard Pivot Point formula, but with the exception of Fibonacci numbers added to the Camarilla Equation. And like the standard Pivot Points, yesterday's price metrics make up the Camarilla levels plotted on the current day. So, the formula below considers the High, Low, and Close of the previous day.

 

H4 = (High – Low) x 1.1 / 2 + Close

 

H3 = (High – Low) x 1.1 / 4 + Close

 

H2 = (High – Low) x 1.1 / 6 + Close

 

H1 = (High – Low) x 1.1 / 12 + Close

 

L1 = Close – (High – Low) x 1.1 / 12

 

L2 = Close – (High – Low) x 1.1 / 6

 

L3 = Close – (High – Low) x 1.1 / 4

 

L4 = Close – (High – Low) x 1.1 / 2

 

Sometimes the support levels here are labeled "S1 to S4" and the resistance "R1 to R4."

 

How to trade the Camarilla Pivots


As stated earlier, there are virtually two main ways that traders use Camarilla Levels. One is for trading breakouts, and the other is to trade against the trend. These trade setups occur on these critical levels: L3, L4, H3, and H4.

When looking for bullish breakouts, traders typically pay close attention to a breach above H4 and, alternatively, below the L4 level for a bearish breakout. The L3 and H3 levels offer countertrend trades, with the L4 and H4 acting as stop-loss areas. A clear rebound on L3 indicates an opportunity to buy a currency pair in a downtrend. And a bounce off H3 connotes a short entry from an uptrend.

 

The Camarilla Equation Levels Strategy For MT4

The trading setups discussed in the next few paragraphs are four ways to trade the Camarilla levels. Of course, there are other ways to act on these pivot points, but the examples here are the most commons ones.

 

Buy Setup (Countertrend)

The system's fundamental concept of the price reverting to its mean lays the foundation for long and short trades. The levels between H3 and L3 represent the "mean area" where the price is believed to come back to. 

A long setup occurs when the price first trades within H3 and L3 and then proceeds to move lower, touching the L3 level in the process. A buy order is then placed at that level after a clear indication of a rebound. H1, H2, and H3 levels are the targets. The stop-loss is set at L4.

 

Example 1 - Camarilla Equation Levels Strategy for MT4:


The example below exemplifies the buy trade rules. On October 30, the price of the EURUSD was trading between H3 and L3 for the most part of the day. When the price advanced to the H3 level, it opened an opportunity to short the currency pair. All targets were achieved as a result.

 

Buy Setup (Breakout)

Breakout trades using this system ensues when the price is trading at the H3 and H4 levels. As the price rises to H4, a buy order is placed and targets the levels beyond it (e.g., H5, H6). The stop-loss is at H3 or a few pips under.

 

Example 2


In the example above, the EURGBP pair opened the September 7 trading day between H3 and H4. Upon closing above H4, a buy trade signal opens up, and the initial target rests at H5, which it did not fail to reach shortly. In fact, the pair continued to trade higher and captured even H6 in its strong rally.

 

Sell Setup (Countertrend)

For a short countertrend trade, the focus levels lie on L3 and H3, once again, the "mean area." The price must first open or trade at that level. Then, if a breach above H3 takes place, followed by a noticeable decline, a sell trade is placed. The stop-loss is at H4, and the target levels are S1, S2, and S3.

 

Example 3 - Camarilla Equation Levels Strategy for MT4:


The EURGBP started the day (Sept. 1) trading between L3 and H3 and found its price inching towards H3 as the day went on. Unable to push higher, the price printed Dojis on H3 and then followed by a red candle that signified that price was about to fall back to its mean. A sell order was placed in turn, and it captured profits off the first three levels. Gains were even extended as the price fell further to L4.

 

Sell Setup (Breakout)

Like breakout trades with the long setup, the price must trade a level lower than the "mean area." If the price is trading at the L3 and L4 levels and then declines to L4, a sell order is placed and targets L5 and lower. The stop-loss is at L3 or a few pips higher.

 

Example 4


The price was constrained in the L3 and L4 range early on July 6. Triggering the sell trade in this example was the first candle that closed below L4, and although the price rebounded after that, it did not hit the stop-loss level set at L3. A few hours more and the price resumed the bearish momentum, capturing the target past L5.

 

We suggest to trade a new trading system on a demo account for at least a few weeks. This will help you to learn the system without risk of losing money. Later you can switch to a real money account. 

 

Download the complete system description and the files here:

FREE Camarilla Equation Levels Strategy

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