Camarilla - Introduction
CHAPTER 7 – PIVOT BOSS
Camarilla (Cont.)
1) Camarilla is a like a built-in trading system, complete with entries, stops and targets – all built into one indicator
2) These are 2 basic set-ups which Camarilla offers - 2 Reversal (H3 & L3 )2 Breakout (H4 & L4)
H3 Reversal Set-up
1) Occurs when market advances to H3, and begins to lose momentum
2) At H3, responsive sellers enter the market, essentially forcing price back to mean level
3) Any sign of weakness at H3 should be seen as selling opportunity, as this is the first major level of resistance identified by
Camarilla
4) Stop Loss and Target–
• Stop - any short position at H3 should carry a stop just above H4
• Target – L3 (because L3 is first major level of support as per Camarilla)
5) Above is too simple, and actual entry might be too complex, for confirmation of reversal ask these basic ques
• Has a bearish pin-bar formed at H3 level confirming change in trend, candle opens and closes below H3 (longer the
wick better the confirmation)
• If you want to see more confirmation –
Does H3 coincide with visual price resistance in chart? Has price been in downtrend in last few days? Has any key
candlestick setup formed at the H3 level?
A powerful confirmation – the following bar after test of H3 level – the following bar should falls below H3 and it’s
close is below prior bar’s close – entry triggers at close of confirmation bar
1) Chart – Natural Gas, TF – 15 Min
H3 Reversal – Example
L3 Reversal Set-up
1) Inverted version of H3 reversal trade – buy at L3, target is H3, stop at just below L4
2) If price drops to L3 and begins to show initial signs of strength responsive buyers enter,
3) Confirmation of reversal – look for bar that follows the initial test of L3 – bar should have low above L3 & closes above the close of
retest bar
Some points to ponder
1 – There are several factors to be looked upon when trading 3rd layer – like
current trend, prior day price behaviour, visual S&R in the vicinity and price
to pivot behaviour
2 – Prior day activity can have huge influence on next days trading
behaviour – for ex if prior day was a trend day, you are more likely to see
range bound day on next day, hence reversals at H3 and L3 are more likely
to occur
Another Example of Trading H3 & L3 Reversal
4th Layer Break Out – H4 Break Out
1) 2nd type of Camarilla set-up (first one was reversal from H3 and L3)
• Objective – breakout from H4, target is H5, stop loss is just below H3
2) Difficult to trade – Reason is though H4 is considered as breakout level, but
it is actually last line of resistance
• Market fights this level on most occasion, this causes price to reverse
multiple times before a breakout finally occurs
• So, wait for pullback to H4, pullback can be multiple times as well
• Confirmation – Trade only when the candle closes above H4, with a
large body and huge volume
3) In Fig 1 – notice how the first 5 candles were just testing the H4 level with
each candle closing below H4
• But then the 6th candle with big body finally gave the breakout, so
enter in trade only when the candle closes
4) In Fig 2 – Notice how the price rallied since morning, but consolidated near
H4, and tested the H4 level multiple times with wick candles
• Then reversed back to H3 so that the SL of novice traders get hit and
then finally gave a breakout at H4
• There are 2 confirmations before breakout – 1st is price has already
tested H4 multiple time and 2nd is breakout has happened with large
body (and huge vol)
L4 Break Out Set-up
1) Inverted version of H4 break out trade – enter short on a close
below L4, target as L5 and stop at just above L3
2) Difficult to trade – since L4 is last level of support, you may see a
struggle at this level before a breakout or reversal may occur
3) Key is to watch price behaviour very closely and cautiously at L4
or H4 level to determine breakout
Some important points
1) Based on previous day trading behaviour, you can get a clue on to play H3 L3 reversal or L4 H4 breakout
If previous day was range bound – today pivots will be narrow, and hence a H4 L4 breakout is likely to appear
If previous day was trending – today pivots will be far away and hence L3 H3 reversals are likely to occur
2) Where the price opened today in relation to pivots also helps in determining the trend
3) Think of region between H3 and L3 as Camarilla version of value area – when price goes beyond these, the
market is looking to push the price to a new level
