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Using yesterday's open, high, low and close price, the camarilla pivot points, also known as camarilla equation, creates 9 levels; one pivot level, 4 resistance levels and 4 support levels.
The camarilla equation was discovered in 1989 by Nick Stott, a bond trader. The support and resistance levels can be used to define and set up limit, stop loss or take-profit orders.
The camarilla equation's calculation of a resistance level consists of adding the close price to the current trading day's range (high price minus low price) and then multiplying the result by a constant value.
The higher the resistance or the support line is the more unlikely the security price will break it in the intraday session. This means that a stock or any other instrument often crosses above resistance R1 and below support S1, but very rarely crosses above resistance R4 and below support S4. The market is likely to reverse when it approaches resistance R4 or support S4
The camarilla function name is CAMARILLA_PP. It accepts two parameters:
RPS (Resistance - Pivot - Support): Determines whether to draw the resistance (0), pivot (1) or support level (2).
Level: Determines which resistance or support level to return.
Example: Plot the camarilla R2 (Resistance Level 2)
plot(CAMARILLA_PP(0, 2), "R2", colorBlue);
Camarilla pivot points are considered to be very reliable and are often used by day traders to detect potential entries and stop levels.
Other pivot points include classic pivot points, Tom DeMark's pivot points and woodie pivot points.