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Advanced Day Trading with the Camarilla {b} Equation

When to jump in - opening a trade

When you reach a professional day trading level, you will realise that on approximately 75% of days, an interesting thing will happen. Price, instead of bouncing off the upper or lower band defined by the 'flat channel', will break thru. There is nothing mystical about this; market prices move during the day because buyers and sellers have trading disagreements about price, and this can obviously be used as the basis of a trading strategy. They resolve these differences by 'testing' each other's limits; in other words, buyers try to bid the price up BEYOND the 'Go Long' level, and sellers try to short it down BELOW the 'Go Short' level. If one side is much stronger than the other, one or other of the boundaries will be broken significantly, and you see the market start to trend that way strongly. And a strong trend gives the day trader something to trade against.

The fascinating thing about the Camarilla {b} Equation 'Go Long' and 'Go Short' day trading levels is that they highlight the prices at which traders and players with longer trading time frames begin to get interested. Large funds, for example, may ignore the usual intraday meanderings; they have no interest in trading every half a point move; but suddenly become concerned if price drops thru the 'Go Short' level. They will then also join the fray, trying to protect their own positions, and a sudden strong directional move develops. It is these sudden sharp thrusts that the day trader wants to ride on. These are the '30 foot breakers' that will give us the really cool surf ride up to the day trading beach.



Day Trading breakout
This also, of course, gives us a fairly low risk entry point, whether the market is rising or falling, and important consideration in any day trading strategy. Breakouts thru these go long / short levels are usually strongly directional, meaning that we can trade them with relatively small stop losses as there is a LOT of cash behind them. Small stop losses usually equate to low risk. One note - if the distance between the entry point and the profit target suggestion is less than the distance between the entry point and associated stop loss, the trade has a poor 'risk / reward' ratio. You may want to reconsider day trading on a day like that, as maintaining a positive risk / reward ratio will be a great help to you in the quest for consistent day trading profits.