hr: Currency

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As a techical indicator, the Camarilla Equation is popular as a day trading tool. The principle behind this equation is the concept that market trends will have a tendency of reverting to a mean overtime.

The Camarilla equation takes four arguments of variables from the previous trading day. These variables are the market opening, market closing, high and low.

The equation generates eight price levels based on these aforementioned variables. The lowest four are called the “support” levels and are labeled L1 to L4. The highest four are termed “resistance” levels with labels H1 to H4. These levels indicate the points at which a reverse toward the mean is likely to take place on a particular trading day.

Of all the levels the equation generates, levels L3 and H3 are the most important. At L3, the is a strong market support that suggests that there will be a reversal towards a price increase. H3 indicats a strong market resistance meaning there will be a reversal to lower prices.

On the other hand, L4 and H4 are called “breakout” levels. This means that if market prices reach beyond these levels, indicating that this breakout trend will be sustained for a considerable period of time.

Due to the fact that the Camarilla Equation is a guarded knowledge, there are several different versions, by reason of its “secret” nature, of this equation, which further differ in accuracy as well as complexity.

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