Camarilla Equation Trading Method 2

Trading Breakouts with the Camarilla Equation

The S4 and R4 levels are actually phenomenally good 'breakout' levels themselves. If price pushes up thru the higher R4 level, the chances are it is going to keep on running that way. Our own research indicates that in such a breakout on the S&P, a move of up to 7 points can be expected, which is, as you will understand, a VERY significant proportion of a typical day's volatility.

Running with the breakout

As the original equation specified no levels outside S4, knowing when to exit the trade becomes highly subjective. This is where Camarilla's '{b}' version of the Equation becomes useful, as the 'profit target' of the {b} version seems, in our experience, to be quite a good level to watch for the move to falter. Taking profits here might often be a prudent course of action, as once your money is off the table, the worst that can happen is that you earn some interest on it! Stoplosses, of course are also subjective - we find on the S&P that 2 points or less is usually sufficient. Once again, Camarilla's '{b}' version supplies a suggested stoploss, which seems to actually be quite a good suggestion in our experience.

In this example from the FTSE (The UK equivalent of the S&P) on 1st July 2003, the breakout is clearly signposted downwards, as is the suggested profit target. This particular breakout uses the levels from the {b} version of the equation, which usually correspond quite well to L4.