The French Connection Day Trader Maxi Dress is a strappy dress in cotton, featuring a structured bust and a ruffle layered hemline. From an equation once shrouded in mystery, a flavor of pivot points came to light that many short-term traders enjoy when plotted on the daily chart. This versatile indicator is thought to provide traders with not only a mannerism of managing risk, but also a mannerism of entering trades. As we looked at in our article on Pivot Points, a simple mathematical calculation can help traders use the price data from the previous period to find support and resistance levels. When price approaches the 3rd level of support or resistance, many traders feel the chance of a reversal may be imminent.
Alternatively, many traders also feel that if the 4th level of support or resistance is hit the potential for a breakout may be increased.
Since traders feel the propensity for a breakout may increase if the daily S3 or R3 pivot is hit, they may also look to place a trade in that direction. If a trader observes a longer-term up trend that they would like to buy cheaply, they may wait until price reaches the daily S3 Camarilla Pivot to do so.
And the exact opposite can be true for longer-term downtrends, in which the trader looks to sell when price rises to the daily R3 Cam Pivot.
As such, some traders will look at intersections with the S4 and R4 levels as an opportunity for trading a breakout, much in the manner we had looked at in the article The Ballistics of Breakouts. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.Learn forex trading with a free practice account and trading charts from FXCM. The calculation of Camarilla Pivot Points produces considerably closer levels than other pivot variations might, leading to a more trading activity than other flavors of this popular support and resistance indicator. The previous period can be defined as an hour, day, week, or month with quite a few variations in between.
As such, those traders will often look to take profits at these levels if met while in a winning position. And if this is the case, those traders would want to contain the damage of incorrect trades if these levels get hit on losing positions, looking to place stops just outside of these prices.
As we looked at in our article on Pivot Points, traders can incorporate multiple time frame analysis in an effort to get a bigger picture view on the meaning of interactions with support or resistance levels.
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