Harmonic Trading – Lesson 13

The Harmonic Trading was developed in the 80s in the US by authors such as Larry Pesavento, Livermore, Gartley, among others. Such was the impact of this type of trading that even the FED went home to several of these authors to learn how the method worked. We will never know for what purpose, but it is a fact that they have passed the great fortunes by the classes of these avid researchers.

All figures are based on price depletion and structural failure Classic. At first it is difficult to see these types of formations and a Once the eye is trained it is quite easy to determine the creation and formation of any of the existing figures.

We will start with the simplest to go through the most complex, giving a more theoretical approach given that we could write more than a thousand pages on the subject. The truth of its effectiveness is the same as that of the indicators, in 1-hour charts up its reliability is 85% so we cannot operate with graphics of 1,5 or 15 minutes with this type of operation. Many of the figures fail miserably if we put them in very small timeframes.

We will enter below with the basic descriptions to make a approach that is not very complex for the reader. Harmonic pattern trading to invest is based on the search for certain formations that are repeated in the graphics.

These patterns must respect certain proportions, in most of the cases Fibonacci numbers. The appearance of these patterns in the graphics marks areas of potential turn that It must be confirmed.

There are different criteria regarding the ideal proportions of each pattern. refers. This means that the figures are open and in certain cases the figures are more than accurate worse is not the norm.

We will find more and less exact patterns. The more accurate they are, in the respect for possible projections, the more likely the turn is. The confluence zone of the different projections will be where our focus will be study in the search for a return figure or another confirmation of the change.

If these patterns of change appear in areas that can potentially be soils or market ceilings, they charge special importance.

Harmonic Trading Figures- AB = CD

It is the simplest harmonic pattern and is based on a practical premise besides having a numerical base in relation to Fibonacci. Imagine that you enter the market, He gets his first objective then sees that he corrects little and decides to put another position.

What happens when you have achieved your double objective? The answer is simple, that you will close the position and that’s when the employer comes into operation in against the tendency to by 61.8% of the setback.

Its base are two segments of the same size, separated by a smaller movement in the opposite direction. As its name suggests, the segment joining points A and B will be the same size than the one that connects points C and D. The perfect proportions would be that in addition to AB = CD:

B-C Correct A-B by 61.8% and C-D by B-C by 1618% B-C corrected A-B by 78.6% and C-D by B-C by 127%. The projections of AB = CD and Fibonacci must coincide in a range of wrecks narrow that will mark the potential turning area.

Harmonic Trading Figures- Gartley

The Gartley is the classic harmonic pattern par excellence. It was discovered in 1.935, the ideal proportions by Fibonacci were included later. The perfect Gartley includes an AB = CD within its structure. The most important measurements for a reliable figure are:

A-B must correct X-A by 61.8%, C-B must end in the scope of 78.6% of the retracement of segment X-A.The area between the level where AB = CD and the 78.6 retracement of X-A will be the potential area rotation.

Harmonic Trading Figures-Butterfly

The Butterfly is another classic pattern, similar to the Gartley. It also has a kind of AB = CD in which C-D is usually a projection of 127 or 161.8 of A-B.

The most important level is the 127% retracement of X-A at point D. If this level is exceeded the recoil of 161.8% of X-A will be the most reliable level. An extreme correction of B-C (200, 224, 261.8%) that coincides with 127% or 161.8 of X-A recoil marks an especially likely turning area. The most important level is the 127% retracement of X-A at point D. 161.8 if it is surpassed.

Harmonic Trading figures – Bat

Pattern more modern than the previous ones. Very precise pattern allows tighter stop loss. It is characterized by a correction of 88.6% of X-A in D. A-B must correct less than 61.8% of X-A, preferably 50% or 38.2%. C-D must correct at least 161.8% to B-C. C-D will be greater than A-B, 127% would be perfect. Effective and exact pattern if ideal conditions are met.

Harmonic Trading figures- Crab

Like the bat, it is also a modern pattern. If it is given it is very accurate and allows very tight stop loss.

Fundamental correction of 161.8% of X-A in D. Important also extreme correction of B-C: (224%, 261.8%, 314% 361,8%). The concurrence of the previous projections in a range of narrow prices you can mark the turning point very accurately.

The concurrence of the corrections: 161.8% of X-A and 224.261.8, 314, 361.8% of B-C can mark with much accuracy the turning point.

Once we have defined the potential turning area through the different possible projections and the price reach this area we will look for a confirmation that this change does occur. We will not automatically be against the trend. This change of direction can be confirmed using different disciplines.

Confirmation of the price change

Once we have defined the potential turning area through the different possible projections and the price reach this area we will look for a confirmation that this change does occur. We will not automatically be against the trend. This change of Address can be confirmed using different disciplines. The confirmation of the turn we can give it a pattern of Japanese candles to confirm the turn we can also use indicators or oscillators waiting for them to confirm the change with a buy or sell signal.

If in the doubt we have not entered, we can have a good second chance: if after a first reaction in the expected direction, the price corrects 78.6% of this movement, can give us a good second entry. Harmonic patterns can anticipate important market turns, especially if appear in areas of potential trend change. This would allow us to enter “Long-term” trades “. In any case, the minimum goal of entry by harmonic pattern will be 61.8% of the C-D kick.

They may think that they no longer have the age to start doing this type of calculations or searches, but nothing further from reality. There are many platforms that support indicators that look for you figures automatically, they can even make you reach the email the figures that are being formed or that have already been formed. What this technique allows you to do is adjust the stops to make risk management very, very effective I have met many people who have been able to be profitable to Over time using this method of approaching the market.

Do not miss our Learning Forex: Lesson 12

Forex managed accountsHarmonic Trading – Lesson 13

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