2025.02.27 2025.02.27
Camarilla Pivot Points: Strategies for Trading Success

Oleg Tkachenkohttps://www.litefinance.org/blog/authors/oleg-tkachenko/

The Camarilla indicator, developed by trader Nick Scott in 1989, builds on the concept of pivot points in trading that dates back to the 1930s. The basic idea behind Camarilla pivot points is that, in many instances, prices tend to revert to the previous day’s closing price. Thus, this indicator operates on the principle of regularity. Camarilla pivot points serve as crucial levels of support and resistance for price trends of varying strengths. When the price breaks through the nearest level, it indicates that the trend possesses sufficient momentum to potentially reach the second or even third level. Nonetheless, as the price deviates further from the original point, the likelihood of a reversal increases significantly.

This review provides an in-depth look at how the Camarilla pivot point indicator functions, its basic principles, and the key trading signals it generates. Besides, the article covers practical trading strategies based on the Camarilla levels, offering a variety of algorithms.

Major Takeaways

• Camarilla pivot points are an indicator created by Nick Scott that employs a mathematical algorithm to establish key levels where a price reversal is likely to occur. It is typically used alongside traditional resistance and support levels, as well as reversal patterns.
• Camarilla pivot points are a unique type of pivot points that are calculated based on three key values of the previous candlestick: the high, low, and close.
• The standard version of the indicator features four support lines (S) and four resistance lines (R), all plotted relative to the central pivot point (PP). The greater the distance of a line from the central line, the higher the likelihood of a reversal.
• Application: a distant level may indicate a possible reversal point, a breakout of distant levels suggests a strong trend, and a breakout of the closest levels after a flat market signals a new trend. The indicator can also be used to set stop-loss and take-profit orders.
• The Pivot Point Standard indicator is one of the basic indicators on the LiteFinance platform. On the MT4 and MT5 platforms, the indicator should be added manually.
• The indicator serves as an additional tool that confirms the signals of other tools.

What is the Camarilla Pivot Point

There are two main types of tools in chart analysis:

• Price Action patterns: candlestick formations that can indicate the beginning of a new trend, the continuation of an existing one, or a price reversal.
• Levels: resistance and support levels, trend lines, pivot levels.

Pivot points are key thresholds where a price reversal may take place, often referred to as pivot levels. They can function as hidden resistance and support levels, acting as benchmarks that help gauge the length of a trend, its strength, and potential reversal points. The algorithm for calculating these levels is entirely mathematical, relying on the prices from the previous candlestick along with specific adjustment multipliers.

Initially, the central level is plotted. Subsequently, resistance R1 and support S1 are built at equal distances from the central point. At a greater distance, resistance R2 and support S2 are established. Further still, resistance R3 and support S3 levels are determined, and so on. Although pivot level calculators and indicators generally focus on three or four levels, there is no limit to the number of levels that may be calculated manually.

Types of pivot points: Classic, Fibonacci, Woodie, DeMark, Camarilla. Their differences lie in the formula for calculating the levels.

Camarilla pivot points help traders:

• identify potential reversal points;
• detect best times to buy or sell;
• set pending orders;
• determine bullish or bearish zones within a day;
• pinpoint a new trend;
• estimate the extent of possible corrections.

Camarilla pivot points are most often utilized as a supplementary indicator that confirms the signals generated by other tools. This eliminates subjective errors, increasing the probability of profitable trades.

Key Trading Rules for Camarilla Pivots

The concept of trading currencies, stocks, cryptocurrencies, and various other assets using Camarilla pivot points revolves around the idea that the price tends to revert to its mean value over a period. The further the price moves away from its mean value, the greater the probability of a reversal. In pivot points, the mean value is the closing price of the previous candlestick, which reflects the balance between the highest and lowest prices during that period.

The basic rules of Camarilla pivot points trading:

• R1/S1 are considered weak levels. If the price moves between them and cannot break through these levels, it means that the market is flat.
• R2/S2 are stronger levels. They are used for taking profits if the R1/S1 levels are breached.
• R3/S3 are strong benchmark levels at which the probability of reversal is high. If the price bounces off R3, short trades can be considered. If it rebounds from S3, one may consider long positions.
• R4/S4 are the most significant benchmark levels. The R3–R4 and S3–S4 zones are the areas of the most probable trend reversal. If R4 or S4 is pierced, consider long or short trades, respectively.
• Trading typically takes place intraday on the M30–H1 time frames. On the M5–M15 time frames, there is a lot of price noise and significant influence from market makers, which leads to unstable trend movements. In contrast, higher time frames tend to show more prolonged trends with pivot levels breakout.
• Camarilla pivot levels should coincide with resistance and support levels plotted through the trend extrema. Moreover, reversal patterns should confirm these levels. If Camarilla pivot levels coincide with the signals of other indicators, it boosts the likelihood of a potential price reversal.
• If the price opens above the R1 level, one may consider long trades. Conversely, if the trading session starts below the S1 level, short trades can be initiated. Should the price fail to break through R2 or S2, it may start moving in the R2–S2 range.
• If you define the high and low prices from the previous trading session as support and resistance levels, the breakout of either line will be a signal to open a trade in the direction of the trend.

The indicator is adjusted individually for each asset and each time frame, taking into account the average intraday volatility, volatility in different trading sessions, or the degree of price response to news.

Camarilla Pivot MT4 Indicator

The tool is already integrated as a basic one into the LiteFinance web platform. To use it, select Indicators/Built-in and Pivot Points Standard on the chart.

Then, choose the Camarilla display type in the indicator parameters.

Additionally, you can specify the time frame and the number of reverse values in the settings. The lowest possible time frame is daily, while the least number of reverse values is 2. This configuration means the chart will display the Camarilla Pivot levels calculated over the last two closed daily candlesticks. On the H4 time frame, each period will be equal to 6 candlesticks (6 × 4 = 24), whereas for the H1 time frame, it will correspond to 24 candlesticks.

MetaTrader 4 developers have not provided this indicator as a basic tool. Therefore, there are two options to use it.

Option 1. Camarilla pivot points building using a calculator. 

Enter the four key price values of the last closed candlestick to calculate pivot levels for various indicator types. Then, apply them as horizontal lines on the MT4 chart.

The main drawback is that each time a candlestick closes, you need to manually recalculate and reapply the levels. On the upside, some people find numerical information easier to understand than visual charts. Additionally, a calculator allows you to view calculations for multiple types of pivot points simultaneously. You can also overlay several indicators on the chart and set various calculation methods in the settings. However, having more than two dozen lines on a chart can make it look cluttered.

Option 2. Download and install the pivot point indicator into MT4.

The free indicator version for MT4 can be easily found on the Internet. For MT5, QUIK, or cTrader you should look for versions written by traders in the languages of these platforms, that is, MQL5 for MT5 and C# for cTrader.

Algorithm for adding the indicator to the chart:

• Click File/Open Data Folder in the top menu of the MT4 terminal.
• In the opened window, go to the MQL4/Indicators folder. Copy the indicator file you downloaded from the above link into this folder.
• Restart the terminal. The indicator will appear in the Custom category (Insert/Indicators).

This is how the indicator looks on a chart. In the settings, you can select the calculation method (Camarilla in this case), the depth of pivot levels from 1 to 4, the calculation period, and the number of periods. In the chart above, the calculation period is set to daily, with the number of periods adjusted to 10, meaning the levels of the last ten daily candlesticks are displayed. However, since the H1 time frame is used, each range of pivot levels is calculated based on 24-hour candlesticks. This approach is convenient, as the indicator shows pivot levels for each time frame, allowing you to see which levels were tested, breached, or rejected, as well as which hourly candlestick within a day broke through a particular level.

How Are Camarilla Pivot Points Calculated?

Camarilla pivot points are calculated using three key prices: high, low, and close. Unlike other methods, there is no need to determine the central level in this approach. Only resistance and support levels are calculated, four in each direction.

R4 = (H – L) × 1.1 / 2 + C

R3 = (H – L) × 1.1 / 4 + C

R2 = (H – L) × 1.1 / 6 + C

R1 = (H – L) × 1.1 / 12 + C

S1 = C – (H – L) × 1.1 / 12

S2 = C – (H – L) × 1.1 / 6

S3 = C – (H – L) × 1.1 / 4

S4 = C – (H – L) × 1.1 / 2

Here, H, L, and C are the previous candlestick’s highest, lowest, and closing prices, respectively, while R is the resistance level, and S is the support level.

Some sources may offer other calculation options with a different multiplier.

How to Trade Camarilla Pivot Points

Camarilla Pivot Point trading strategies:

1. Trading strategy based on zones of the most probable price reversal. The price will likely break through the first closest R1–R2/S1–S2 levels. However, the further the price moves away from the central level, the higher the probability of a reversal. 

The area between the R3 and R4 resistance levels is recognized as a prime spot for potential price reversals, making it a good place to enter short trades. Conversely, the zone between the S3 and S4 support levels is viewed as a favorable area for initiating long trades.

The chart is plotted on the M30 time frame with pivot levels calculated based on the daily candlesticks. In the first case, marked by the higher arrow on the chart, the price hit the resistance R3 and failed to pierce it. In the second case, the price reversed from the support level S4.

2. Trading strategy based on the breakout of the flat range. When the price breaches one of the flat boundaries, it can signal the beginning of a new trend. To avoid entering a trade on a false breakout, it is advisable to use a pending order placed just above or below the first resistance or support.

Example of setting pending orders.

The price is trading in a sideways channel. At some point, a downward breakout occurs. Place a sell stop pending order (buying at a lower price than the current one) just below the S1 level. If the breakout of the flat boundary is false, the price cannot breach even the first support level S1. If the price pierces it, it may indicate the beginning of a downtrend. Thus, one may open a short trade with a take-profit order set below the S3 level and a stop order above the R1 level.

3. Trading in a strong trend. If the price breaks through the distant levels, the current trend is strong. Therefore, one may open a trade after a breakout according to its direction.

The levels are built according to the last two daily candlesticks: the last closed candlestick and the candlestick of the previous period. The first candlestick from the six candlesticks of the last period (H4 time frame) breaks through the current and previous S4 levels. Afterward, the downtrend continues.

4. Trading within a sideways channel. If the price cannot break through the resistance R1–R2 and support S1–S2 several times, it can be a sideways channel. You can trade within this channel or wait until the price breaches the channel boundaries, starting a new trend.

5. Setting stop and take-profit orders. Pivot levels can be psychologically perceived as potential points of trend reversal. Traders may decide to set a take-profit order at the level where the price reversed previously. In order to avoid pending order accumulation zones, a take-profit order should be placed just before the key level, while a stop-loss order should be set slightly beyond it.

Another option for setting stop-loss and take-profit orders:

1. Stop-loss: 

• placed slightly below S4 for long trades opened at S3;
• placed slightly above R4 for short trades opened at R3.

2. Take-profit:

• set at R3 or R4 for long trades;
• set at S3 or S4 for short trades.

You can use a trailing stop instead of a stop order. When one of the pivot levels is reached, a trade can be shifted to the breakeven point and secured with a trailing stop.

You can also use pivot points to gauge the level of volatility and determine the moments of its abnormal growth. For example, when the price moves steadily between R3 and S3, the volatility is average. A breakout of R4 or S4 indicates a sharp increase in volatility. This can be an opportunity to open a short-term trade in the trend direction or consider exiting the market, as a spike in volatility comes with higher risks.

Camarilla Pivot Trading Strategies

The overall concept of strategies based on price behavior appears to be as follows:

• Price movement between R1 and S1 indicates a flat trend. It is better to refrain from trading, as you can incur losses because of the spread.
• Price movement between R3 and S3 suggests trading within the range.
• R4/S4 breakout implies trading along the trend.
• The zone between R3 and R4 or S3 and S4 is a reversal area. Trades can be opened here only in case of price reversal to the central line.

Trend Trading Strategy Using Camarilla Points

If bulls or bears are so strong that the price easily breaks through all levels, it means that there is a strong trend in the Forex market.

Example. Trading setup: currency pair is the EURNZD cross rate. Cross rates are characterized by higher volatility, so it is easier to identify trends on their charts. In the settings of the Camarilla indicator, the time frame is set to daily, and the number of reverse values is four, meaning that pivot levels are calculated based on the previous four daily candlesticks. The chart itself is displayed on the H1 time frame.

You can initiate a trade as soon as the candlestick breaks through S4, or you can wait for it to close and open a position on the next one. A trade opened on candlestick 1 would bring profit, albeit small, about 15–18 pips (when using four-digit quotes).

Afterward, it is possible to trade from S4 to R4 along the recently established uptrend. S2 and R2 can be intermediate targets, where a part of the trade can be closed. The second breakout at point 2 is weak, meaning the trade would close at the breakeven at best.

The short trade opened after the breakout of S4 at point 3 would have been very profitable since the downtrend is strong. However, the price almost triggered a stop-loss order, which is usually placed behind the opposite level (below S3).

Range Trading Strategy Using Camarilla Points

Distant pivot levels form strong resistance and support. The breakout of R1 and S1 indicates the absence of a sideways movement and highlights the strength of the trend, moving between the R3 and S3 levels.

Example. Trading setup: EURUSD currency pair. In the indicator settings, the time frame is set to daily, while the chart time frame is M30. Thus, there would be a relatively large number of candlesticks within the trading period.

Calculations of the last two closed daily candlesticks are plotted on the chart.

In the first section, the price quickly starts to rise. After the breakout of R1, a long trade is opened with a take-profit order set at R3. In the anticipated scenario, the price should continue to climb to R4 or reverse. In this case, the reversal occurs. Thus, a short trade is initiated with a take-profit order placed at S3. Eventually, both trades yield profits.

There are two possible scenarios at S3. In case of an upward reversal, a long trade can be opened within the range. If a downward breakout takes place, the price will fall further. Since the price reverses at S4 and a downtrend seems to lose strength, a long trade is opened at point 1. However, the trade ultimately proves unprofitable, and the price starts to drop after hitting S3.

A breakout of S4 indicates a strong trend. A short trade is opened at point 2 and closed at point 3 when the first upward reversal candlestick appears.

In the second section, the strategy is similar. A long trade is initiated at R1 and closed at R3, and a short position is opened at R3 and closed at S3.

This example highlights the significance of flexibility in trading. A trader should blend multiple strategy options. If you observe that the range movement starts turning into a trend, consider initiating trades along the trend.

Intraday Trading Using Advanced Camarilla Levels

You do not have to limit yourself to the existing distant levels R4/S4 within the trading day. You can extend them further, for example, to R6/S6. The standard indicator does not include these levels, so you will need either a version with extended levels or apply them manually using a calculator specifically designed for Camarilla pivot points.

Trading strategy options:

• If the price climbs above R4, a long trade can be opened above this level with the target at R6. If the price drops below S4, a short trade can be initiated with the target at S6.
• If the price reverses in any zone above R4, a short trade can be opened. If it reverses below S4, consider long trades.

It is essential to match the volatility of each asset to the levels at which the reversal occurs most often. If the volatility is low, reversals are more likely to occur at R3–R4/S3–S4, while for more volatile assets—at R6/S6 and higher.

Combining Camarilla Pivot Points with Other Indicators

Camarilla pivot points can be both a reversal and a trend continuation indicator. Therefore, it can be used with trend indicators and oscillators.

Example of using Camarilla pivot points in conjunction with other technical indicators:

• Trend confirmation by moving averages. The trend indicator signal: when the price crosses the moving average from below, it signals an uptrend, while a crossing from above indicates a downtrend. Additionally, if there is a breakout of R4/S4 based on the Camarilla Pivot indicator, it confirms the trend.
• Combining Camarilla pivot points with volume indicators. For example, the increase in trading volumes when the price approaches R3/S3 signals that it will continue to move at least to R4/S4.
• Confirmation of the reversal by oscillators: the Stochastic, CCI, RSI, and MACD indicators. If indicators show an overbought condition and the price drops after hitting R3, this is a signal to open a short trade. If the indicators show an oversold condition and the price rebounds from S3, this is a signal to open a long trade.
• Trading within a range using channel indicators. Channel indicators reveal the width of the trading range relative to the mean price level. Range expansion can be confirmed by Camarilla pivot points, for example, when R3/S3—considered reversal levels—are breached.
• Coupling with volatility indicators. For example, you can use Camarilla with the ATR. The higher the volatility, the higher the probability of pivot levels breakout.

Combinations of Camarilla pivot points with other technical analysis tools and their settings are customized individually for each asset depending on its volatility.

Traders familiar with grid algorithms can also use trading robots and indicators for automated trading based on pivot levels. Additionally, pivot levels can be used to place a grid of pending orders automatically.

Pros, Cons, and Effectiveness of Camarilla Pivots

Advantages of Camarilla pivot points:

• Simple calculation. If the indicator is unavailable in the platform, you can find any calculator, specify price input data, and get calculated pivot points.
• Versatility. Camarilla points are equally suitable for currency pairs that primarily move in a channel, as well as for stocks or cryptocurrencies. Provided they are used in intraday trading.
• Suitable for preliminary market analysis. It helps to visually assess the potential length of the price movement between these levels and find potential reversal points.

The goal of a Forex trader is to identify as many matching signals as possible from various types of indicators. Camarilla pivot points are one of such confirmation tools used to pinpoint entry and exit points, as well as levels for setting stop-loss and take-profit orders.

Disadvantages of Camarilla pivot points:

• Ineffectiveness in trending financial markets. In strong market trends, the R4/S4 levels will not be reversal levels, as the price can quickly break through them and continue to move further. However, the breakout of distant levels can be viewed as a confirmation of trend strength.
• Subjectivity. The indicator is built based only on three prices of the previous candlestick. It does not consider news, potential volatility increase, or trading volume growth. Besides, it does not take into account the previous candlesticks’ tendency.
• Signal unreliability across time frames. On time frames below M30 and above H4, the efficiency of signals is reduced.

Furthermore, the indicator may seem complicated to beginners, as it overloads the chart. You need to get used to it.

Conclusion

Camarilla pivot points are an auxiliary tool of technical analysis, supplementing traditional levels. It allows traders to:

• discover potential signals for opening trades;
• evaluate the strength of the trend by the breakout of the closest and following levels;
• determine the zones of potential trend reversal;
• identify the boundaries of the flat trend even when traditional support and resistance lines cannot be clearly drawn due to scattered swing highs and lows.

Camarilla trading strategies:

• Breaching a sideways channel boundary. The price usually moves in a narrow range between resistance R1 and support S1. A breakout of any of these levels can be considered the beginning of a new trend, creating an opportunity to enter a trade in that direction.
• Trading on a reversal. If the price is approaching S3, open a long trade with a target at the central or R3 level. Set a stop-loss order just below S4. If the price is closing to R3, open a short trade with a target at the central level or S3, placing a stop-loss order just above R4.
• Trading in a strong trend. If the price breaks through the resistance R4, open a long position. Should the price pierce the support S4, consider a short trade.

Trading with pivot levels is quite similar to using traditional support and resistance levels. Additionally, it is crucial to choose a trading strategy that suits each specific asset and try it in a tester or on a demo account.