Camarilla Pivot Trading Strategy — What Is It? (Backtest Analysis)

Day traders always look for ways to identify key intraday support and resistance levels. This is where the Camarilla pivot points come in. But what is the Camarilla pivot point trading strategy?

Introduced in 1989 by Nick Scott, a successful bond trader, the Camarilla pivot point is an extension of the classical/floor trader pivot point which provides day traders with key intraday support and resistance levels. It has four support and four resistance levels. The Camarilla pivot trading strategy is used for day trading and the way to trade it depends on the market conditions at a given time.

Let’s take a look at the Camarilla pivot points. At the end of the article, we make a backtest of the strategy.

What is the Camarilla pivot trading strategy?

The Camarilla pivot point is an extension of the classical/floor trader pivot point which provides day traders with key intraday support and resistance levels. It was introduced in 1989 by Nick Scott, a successful bond trader. The Camarilla pivot point indicator shows four support and four resistance levels, making it a total of nine levels.

It is a versatile indicator that allows traders to recognize key price levels, entry points, exit points, and appropriate risk management. The Camarilla pivot trading strategy is used for day trading and the way to trade it depends on the market conditions at a given time.

There are various Camarilla pivot point strategies to trade any financial market, and these are a few ideas you can backtest for day trading:

• The market opens above yesterday’s close and drops to the first pivot point support — you go long at the first support pivot point and exit at the day’s close.
• The market opens below yesterday’s close, but above the first pivot point support, and drops to the first pivot point support — enter at the first support pivot point and exit at the day’s close.
• The market opens below yesterday’s close and rises to the first PP resistance — go short at the first resistance pivot point and exit at the day’s close.
• The market opens above yesterday’s close, but below the first pivot point resistance, and rises to the first pivot point resistance — enter at the first resistance pivot point and exit at the day’s close.
• The market opens below the first support pivot point, which now becomes resistance — go short at that first support pivot point and exit at the day’s close.

Do traders use pivot points?

Yes, day traders use pivot points to define important support and resistance levels or to identify potential changes in trend direction.

There are five different types of pivot points that are commonly used by day traders to identify key intraday price levels. They are as follows:

1. Classical pivot points
2. Camarilla pivot points
3. Fibonacci pivot points
4. Woodies pivote points
5. DeMark pivot points

Camarilla pivot vs. fibonacci pivot

The Camarilla pivot uses closing prices from the previous day to compute key support/resistance levels, and it has a total of nine price levels, including four resistance levels and four support levels.

The Fibonacci pivot points strategy, on the other hand, involves the use of Fibonacci studies — projections, extensions, and retracements from price swings — to determine key price levels. The most commonly used levels include the 38.2%, 50%, 61.8%, and 100% retracement levels, as well as the 127%, 138%, and 161.8% extension levels.

Camarilla pivot trading strategy (backtest and example)

For further studies and backtests we refer to our backtest of the “ordinary” pivot points:

• Pivot points trading strategy (backtest)

Why is the above backtest relevant for the Camarillo pivot trading strategy?

Because it’s based on the same principles. The backtest above didn’t reveal any “super profits”, and we fail to see how Camarilla would make much difference. That said, there might be other options we have not investigated.

Why backtest?

We strongly encourage our readers to backtest their own ideas.

Backtesting and a data driven trading approach is no sure thing, but at least you have an idea that something has worked in the past – you have historical performance and performance statistics. If it has not worked in the past, you can skip it immediately. If you know how to backtest with historical data you can develop a portfolio of trading strategies pretty fast. There is no best trading strategy because you need many to smooth returns.

• What is backtesting?

(If you are new to backtesting and statistical testing and it looks like a daunting task, you might be interested in our backtesting course.)

FAQ:

– How does the Camarilla pivot point indicator work?

The Camarilla pivot point indicator shows four support and four resistance levels, totaling nine levels. It is a versatile tool for day traders to identify key price levels, entry points, exit points, and manage risks effectively.

– Are there different strategies to trade with Camarilla pivot points?

Yes, there are various Camarilla pivot point strategies for day trading. Examples include trading based on the market opening position relative to yesterday’s close and the pivot points, both for long and short positions.

– Do day traders use pivot points, and why?

Yes, day traders use pivot points to define crucial support and resistance levels and to identify potential shifts in trend direction. Pivot points help traders make informed decisions based on key intraday price levels.