The idea of a price turn (Pivot Level or Pivot Point) for the first time was offered by G. V. Chase in the 30th years and since then searches of optimum techniques of trade at the key levels don't stop. Camarilla Equation system uses the property of the market to return to the closing price of a previous period – it is considered that it`s simple and effective.
Daily steady patterns, which further became a basis of this trading system, were noticed and classified by the regular bank trader Nick Stott working at the bond market. The basic principles of this statistical model for the first time were published in 1989 and ever since the extensive positive experience of trade on Camarilla Equation system is acquired.
The term Camarilla was applied to a certain group of privy councilors and became current in times of Spanish king Ferdinand VII in whose reign his influential inner circle who were actually ruling the country began to sit at the special small room prior to the royal rooms. The concept «camarilla» became nominal long ago and means a group of the interested persons trying to influence policy or economy by intrigues, speculation, blackmail and by other impartial methods. However, today it`s more correct to call such groups the lobby (for instance, a political, industrial, religious lobby).
The name of this trading system declares claims that the data received with its help with the importance are similar to classified insider information. Levels of the Camarilla Equation system according to the logic of creation and application are similar to other schemes of trade on extreme levels (Pivot Point, Woody, DeMark, Fibonacci's levels), but their main benefit – determination of the strongest levels interim a day.
Calculation and interpretation of the main signals
The majority of classical strategy show optimum results on the seniors timeframes. In difference from them, the Camarilla levels are intended for trade in the short term and though such trade is considered more dangerous, we will try to confute this opinion by means of the description of the Camarilla Equation system rules.
The technique is the trade option on price levels for which creation only opening prices, closings, a maximum and a minimum of a candle are used. Key level is the closing price of previous day. If the indicator is creating at the prices of average timeframes, for instance, week or H4, then the prices of these time periods respectively are taken into account. The scheme of creation and application is the same.
As a result of calculation five levels with marking L and five with marking H are located down and up from the price of Close of a day candle. As a rule, the closest L1-L2, H1-H2 levels are excluded from the analysis, movement in this range is treated as narrow flat, unsuitable for the opening of transactions.
The set of three zones («corridors») formed around closing price of a yesterday's session is used for trade on the Camarilla Equation system levels. The zone of the interior between the L3-H3 levels, and also external zone L4-H4 are a source of the main trading signals. Space of H3-H4 and L3-L4 are buffer zone (uncertainty), positions aren't opened in this range, but the behavior of the price in this range determines the main analysis result.
From the moment of emergence of classical recommendations, the market changed very much, at least, became more volatile and unpredictable. Now some conditions of an entrance and exit should be treated more flexibly. For instance - the buffer zones H3-H4 and L3-L4 where according to the classics you shouldn`t trade, can quite be used for trade the breakthrough inside these corridors. Sometimes within 1-2 days, the price passes from a wall to a wall several times in a row and you shouldn't lose such movement.
The internal corridor is limited by the H3 and L3 lines. It is supposed that with a probability of 60-70% the price moves within these zones, but if it breaks the upper or lower bound and after kickback continues the movement, then you should open (or hold) transactions in this direction.
The external corridor is limited by the H4 and L4 lines on which you should place TakeProfit of the transactions opened on the breakthrough of bounds of an internal corridor.
Target corridor – the H5 and L5 lines − the second TakeProfit level or the upper bound of the standard day range.
You have to monitor the movement of the price in an internal corridor:
- For the trade against a trend, the kickback from L3-H3 is used: if there is no breakthrough, open the counter side.
- For transactions on a trend, we use the breakthrough of the L3-H3 and L4-H4 key levels. In any transactions, it`ll be logical to place StopLoss at the next opposite levels.
There are few technical indicators for the creation of the Camarilla levels, but each of them consists of the same 5(7) key lines and distinction only in additional creations.
The Camarilla system isn't suitable for work on news, but even speculative throws are correctly fulfilled at its key levels due to the accumulation of trade interest, but only just after the news.
And the first problem for the Camarilla Equation system appears.
If, as a result of the news, the new strong trend isn't created, then next day you achieve, to put it mildly, not really correct settlement data.
As only price data of previous day (or any single period) is in the calculation, any intra-day splashes in volatility create a day candle with small «body» and big «tails». So even if the closing price will be perceived by the current market as logical, then the boundary Camarilla Equation system L4-L5 and H4-H5 levels constructed taking into account the previous, speculative max/min prices distorting a price picture. They are created too far from current price and probability of achievement of such levels within the «normal» trading day is very low. In that case, the Camarilla technique comes short of the meaning to classical Fibonacci`s levels or the regular Pivot levels which show correctly the average value.
Trade on the Camarilla Equation system levels
Trade on the Camarilla Equation system uses 2 types of signals: in an internal corridor L3-H3 and an external corridor L4-H4 – the second. Trade on L3-H3 and L4-H4 sites is contraindicated. The target corridor L5-H5 as a source of signals isn't used.
Trading signals of the 1st type
The L3 and H3 levels are considered as levels of a potential turn, and therefore in the case of a contact with the price any of them position opening against a trend is meant. TakeProfit is placed on the opposite L3/H3 level with a shift in several points inside a corridor, and the next senior L4/H4 level respectively is used as StopLoss.
In case if the price doesn't reach the opposite edge of an H3-L3 corridor, it most often crosses the level of yesterday's closing price, therefore, it makes a sense to open two orders and to close 50% of profit in case of achievement at the price of this level. At the same time, we transfer StopLoss in the black.
Trading signals of the 2st type
In the case of a breakthrough of an external L4-H4 corridor, the position opening tactics on a trend is used. It is considered that it is a technique for more careful. The next L5/H5 level is placed as a TakeProfit, and the L3/H3 levels serve for the StopLoss installation. In a situation of a real breakthrough, the target L5/H5 levels are fulfilled reliably, and almost in 40-50% of cases after the breakthrough, the price goes much further.
Actually, it`s quite difficult to estimate the validity of breakthrough, therefore, it isn't recommended to use the postponed orders for the fulfillment of signals on the Camarilla levels.
Estimation of reliability of a signal
In the case of the work with the Camarilla levels the second serious problem − reliability of breakthrough – is solved by the use of any oscillator for confirmation of an entrance: if the line of the indicator is higher than the line of balance – purchase, if below – sale.
For estimation of the reliability of signals, the combination containing the Camarilla levels and any trend indicator is recommended to be supplemented with standard oscillators, at least RSI with the small period. In the case the main signal appears on RSI(8) graphics we build the line of support through the next minima, then a breakthrough of this line by the RSI schedule at the time of kickback of the price will confirm in addition a signal on an entrance.
Optimum, if the crossing of the line of support or resistance on the schedule RSI is in the field of lower than 50 for signals on the purchase and higher than 50 for signals for sale, so RSI to have enough «space» for growth/fall. If such «space» isn't enough and the RSI line quickly leaves a critical zone, then it is recommended to fix the transaction, at least, by stop loss.
The Camarilla technique expects that having made some price fluctuations yesterday, today the market shall return to the closing price of the previous trading day. Of course, it doesn't occur in 90% of cases, and for tomorrow already new key levels are calculated with the same hope for a turn.
In my opinion, all techniques based on price data only, a concept of a certain «memory of the market» and «aspiration of the market to average value» aren't suitable for independent use on Forex. All turning indicators were created by exchange traders which trade in shares, bonds, futures –trade volumes, and almost everything, except for the «hidden» pools are always visible to them in the exchange point-of-sale terminal. At least, accumulations of trade interest at the key levels are precisely visible, therefore, they manage to trade from these levels rather successfully. And intra-day they almost don't work – the Camarilla technique author initially developed it for week transactions. There are no real amounts in the Forex point-of-sale terminal, only tick for which analysis separate indicators are necessary. Therefore, what happens at the key levels (any) and should you wait for fulfilling it in the settlement direction – any levels indicator won't tell you.
So statistics is the only hope. The offered Camarilla levels calculated only based on the one-day candle data don't consider trade volumes and fundamental data, therefore, can be used only in a set with additional tools with very tough money management.
Fans of trade on levels may be interested in complex turning indicators which build several levels by different techniques at the same time, for instance, Camarilla + Fibonacci. Then, at least approximately, you may estimate a correctness of calculation and to choose the most suitable levels for TakeProfit and StopLoss. And for confirmation of signals on an entrance and an exit, it`s better to ask recommendation somebody else.
The Camarilla levels in a combination of Ichimoku Kinko Hyo
The Ichimoku Kinko Hyo indicator (and all its options) which is habitual to everyone, is recommended for confirmation of both types of the signals arising in the case of the work with the Camarilla Equation system levels.
On an example low price successfully beats off L3 and, by rules of Camarilla, it was necessary to enter purchase against a trend on purpose on opposite bound of an internal corridor. But, as a result, the price reached the middle of the range and turned.
The reasons of the majority of false breakthroughs become clear if on the schedule with levels to add the standard IchimokuKinkoHyo (12,24,120) indicator. As a result, we see that on the way of movement the zone Senkou Span A is created as strong resistance which the price couldn't break. For care it is possible both to put TakeProfit on Senkou Span cloud bound or, according to the descending direction of the Kijun Sen line and color of an Ichimoku cloud, not to open the transaction at all.
On the second example, the more favorable situation is visible. The Kumo cloud is out of a zone of an internal corridor and color of a cloud (together with Kijun-Sen) confirm the ascending nature of a trend.
Ichimoku with parameters (12,60,120) more successfully for less volatile assets. In general, if the price breaks the L3/H3 levels out of the Cloud, then it has every chance to reach not only L4/H4 but also L5/H5 because then there are practically no obstacles on the way and movement is strictly on a trend. If, of course, any unexpected base doesn't prevent.
Trade on levels in the Ichimoku Cloud zone is unstable, but the relative positioning of Ichimoku key lines and a general configuration of the Cloud are very important for signals on the Camarilla levels. If breakthrough of bound is executed successfully and a zone rather «wide», the key lines have accurate direction and the price moves above/below, then trade in the Cloud is quite admissible. If the Cloud confirms narrow flat, then trade on levels looks, at least, illogical.
Ichimoku cloud bounds have the strongest impact on the reliability of a signal. If the Senkou Span A or Senkou Span B lines at dangerous proximity to key levels, then it`s recommended to wait a spell with the opening of the transaction.
Camarilla Equation system signals are especially reliable if the Senkou Span lines match bound of a corridor or are near them – from the counter side from the settlement movement of the price. In that case, it`s recommended to open transactions in the direction of Kijun-Sen movement taking into account color of an Ichimoku cloud. In examples, parameters of Ichimoku indicator for hour schedules are used.
Pleasant addition − Weekly Camarilla
Practically all trade systems for the best estimation of the situation assume the analysis of the senior timeframes. Making the decision on position opening interim a day, it makes a sense to consider the levels constructed based on week data − Weekly Camarilla. If in the calculation to use not the previous day prices, but data of the last week, then it is possible to have a similar system of levels and to apply it on H4 and D1 that considerably expands possibilities of a technique. If the working timeframe is H1, then we use the Camarilla Equation system levels on it, and on the next period H4 − Weekly Camarilla, and we place both windows nearby. Weekly Camarilla correctly works at D1, H4, H1 and below. If a Weekly Camarilla level is on the way of price movement to settlement level within a day, then it`s better both correcting the value of TakeProfit, or to refuse the transaction at all. For usability, the Weekly Camarilla zones usually highlight with color.
If the action period of Camarilla Equation system levels system is limited by a trading day, then action time of Weekly Camarilla is limited by trade week – since Monday till Friday. Rules of work are similar. Parameters for Ichimoku Kinko Hyo shall include the periods multiple 30 (15, 30, 120).
Example of complex trade strategy
Fractal + Oscillator + Camarilla strategy steadily works at any currency asset and timeframe which is not below M15. On smaller periods it gives too many false signals.
Necessary tools: the indicator of the Camarilla levels (any), the indicator of fractals (standard), RSI(8) oscillator (it may be changed by with Stochastic (9, 3, 3, WMA)).
Spring back from level − the combination of candles near the Camarilla indicator forming «triangle» up or «triangle» down. There have to be 2 or 3 preliminary tests of level before the actual breakthrough.
The correct diagnostics taking into account the indicator of fractals
The standard situation when one candle is closed out of level lines and the next candle follows in the same direction is considered a signal of the breakthrough of the level.
The emergence of a fractal near the Camarilla levels – very strong signal, therefore, we enter as soon as appears the necessary pattern, we put TakeProfit at the following level above/below, and StopLoss − below the created pattern.
And as the conclusion …
Camarilla Equation system in a modern type was initially created for intra-day trade which always was considered as riskier. Those, who complain of the unreliability of the Camarilla levels, usually forget that this technique was developed for the stock market and bonds – and those markets are much quieter than wild Forex. Needless to say that such strategy implies availability of the steady, not speculative market. That is before, interim and after news – we don't trade. In the case of gaps at the opening of the trading day (week) – you should wait for closing of a price gap, otherwise, the constructed levels will be considered as incorrect. Correctly constructed Camarilla levels «will break» only next day, therefore, within a day we work only within the calculated channel.
The popularity of traditional calculations of turning levels (like Fibonacci) results in the effect of «general opinion» and attempts to enter the market «as all men» often comes to an end with failure, especially – in the case of intra-day trade. In this case, continuous small «free play» between settlement levels of Fibo and Camarilla allows to open a position and leave the market much more effective.
The offered combinations of the Camarilla levels with additional indicators allow increasing the quality of entrances and a ratio of successful transactions to unsuccessful. Signals on L3-H3 and L4-H4 give 65-70% of positive results, and in the case of careful approach, even the beginner earns on them. In general, at the modern market Camarilla Equation system steadily works every day as the element of the complex system and in the case of reasonable approach can bring a constant, though small profit.Social button for Joomla