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Camarilla Equation |
anthonymaiorano
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 Posted: Fri Apr 23, 2010 11:27 am Post subject: Camarilla Equation |
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Can someone explain the 'Camarilla Equation to me?
I have looked on the internet...??? |
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Camarilla Equation Replies |
smile
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Joined: 27 Mar 2010
Posts: 192
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| Posted: Thu Apr 29, 2010 8:46 pm Post subject: Re: Camarilla Equation |
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| Nick Stott, inventor of the Camarilla Equation wrote: | | It doesn't predict anything. I'm not a fortune teller. All it does is tell you what to do IF certain things happen tomorrow. |
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this probably helps no one but me in concept only, but I think the concept Nick used was based on three concepts:
1) his own trading experience over years as a bond trader in which he observed repetitive patterns, in his words " regular patterns emerging every day, differing only in scale"
2) his study of a portion of Steidlmayer's work on market profiling - most likely the concept that certain price levels elicited certain behavior among traders - price equilibrium and reversion to the mean
3) the concept of naturally occurring patterns such as phi or the golden mean in decimal form 1.6180339887499... , in Steidlemayer's work the bell curve, in math fibonacci sequence which at some point if you take any two sequential fib numbers in the sequence and reduce it to a ratio, the number which is oscillated around closely approximates phi.
In essence the formula "expounds the theory that markets, like most time series, have a tendency to revert to the mean. In other words, when markets have a very wide spread between the high and low the day before, they tend to reverse and retreat back towards the previous day's close. This suggests that today's intraday support and resistance can be predicted using yesterday's volatility."
I'm guessing but Stott seems to have distilled down in mathematical form this pattern or step process where trading behavior has the potential to change by taking the prior day's range and relating it to the prior day's close thru the use of a scaling process or factors which he probably observed over and over in his trading experience, implying the prior day's trading has the potential as a base to relate to the next day's trading pattern.
Lots of stuff on the net on the equation but they all distill down to the following factors: .09 .18 .275 .55 which you might see in this form 1.1/2 which is the same as .55, probably derived by backing into the numbers from actual data.
The bottom line is whether these patterns truly exist - in essence they are similar to the concept of pivot levels (support and resistance) and are probably on the same scale of reliability.
The news of the day IMO has a greater impact on prices than any random pattern (real or imagined) which may or may not exist with that said if it works and gives you an edge use it, if not - keep looking for the holy grail of investing. Stott even suggests in his quote that the numbers are not predictive but rather attempt to tell you what to do when certain levels of equilibrium are reached in terms of price - concentrating on L3 & L4 and H3 & H4 with the 3 level having a reversal pattern and the 4 level either breaking up H4 or down L4.
One final issue if you read Steidlmayer you will note that trading patterns change over the years so static patterns which may have worked in one kind of market may not work in another type of market.
nuff said... 
refs:
Stott Interview
Golden Mean
Steidlmayer |
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smile
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Joined: 27 Mar 2010
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| Posted: Sun Apr 25, 2010 4:30 pm Post subject: Re: Camarilla Equation |
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| anthonymaiorano wrote: | Can someone explain the 'Camarilla Equation to me?
I have looked on the internet...??? |
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| Nick Stott, inventor of the Camarilla Equation wrote: | | It doesn't predict anything. I'm not a fortune teller. All it does is tell you what to do IF certain things happen tomorrow. |
If you intend to use it to day trade keep us posted on your progress.
If it was easy anyone could do it (red light green light infomercial). |
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