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Harmonic Trading
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Harmonic Trading

  #51 (permalink)
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0,618
0,786
1,270
1,618


These four numbers should become the basis for identifying any potential trade opportunity. A chart must be considered harmonic, when price action is observed to reverse off these numbers in a specific fashion. If price action "bounces" of these numbers you should assume that more harmonic action would likely continue.

Although price action often exceeds the exact price level where the harmonic calculation completes, it is very common for reversal to occur shortly thereafter.
Therefore, it is critical to examine the price action in the entire zone before determining the validity of a trade. In many cases, the set up may require several price bars of consolidation before changing trend direction. In other instances, the reversal may require only 2 or 3 price bars to completely test the pattern completion and validate the new trend.

Despite these varied situations, the focus should still remain on the price zone where the pattern completes. When the price action enters a PRZ, it often will possess an "abnormal character", as compared with the previous trading. If the market reverses, the price action will possess price bars that are opposite from the predominant trend in the harmonic zone. If it does not reverse, the price action usually will exhibit a warning sign at these sign at these areas.

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  #52 (permalink)
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0,618 Retracement

The most famous and frequent Fibonacci number is 0,618. Let's have some examples.


Bullish 0,618 Retracement


The bullish 0,618 is an important retracement area for price action that is selling off. Therefore, the 0,618 should be first area to examine for a potential reversal.

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During a decline, wait for the price action to approach the 0,618 area and observe the price action. If the sell-off is extreme, as indicated by a warning sign, then wait for one price bar before executing a trade at the 0,618 retracement area. However, if the price action finds support in this area, exhibited by a reversal price bar, then buy at the 0,618.

Here's an example (CL 5 range chart):

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  #53 (permalink)
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Bearish 0,618 Retracement

The bearish 0,618 retracement forms typically after a strong but impulsive rally that fails a prior significant peak. A reversal from the bearish 0,618 usually indicates a continuation of the predominant downtrend.

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It is important to study the price action in the area close to the retracement. If the price action begins to stall or break down, it would indicate that the 0,618 is acting as valid resistance. It is important to recognize these signals when price action tests critical harmonic levels such as the bearish 0,618 retracement.
The important aspect of this Fibonacci retracement is that in a bearish retracement, it is the first potential area of major resistance. So if you are long or you're looking to enter a short position that is rallying after a significant decline, you'd want to look specifically in the general 0,618 area for the first possible trade opportunity.

Here's an example of CL 5 range (an exact 0,618 retracement reversal):

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Here's another example of the CL 89 ticks (note the resistance at ,618,):

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Last edited by George; October 15th, 2009 at 08:52 AM.
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  #54 (permalink)
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Live trading on CL 233 ticks. Retracement confirmed at 17,37 GMT+1h 0,618.

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  #55 (permalink)
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And here's what it looks like on a 89 ticks chart. Notice the support in the 0,618 area.

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  #56 (permalink)
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and the development:

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  #57 (permalink)
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Retracements

George:

As far as your concerned, once price reaches the retracement level, your focus moves on to the price action from that point and not the pattern? In other words, you switch into a discretionary or tape read to enter and manage the trade?

Jeff

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  #58 (permalink)
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Yes Jeff,

Once the retracement level has been reached. Then we get the requirements for the set-up. We get our harmonic relation. In order to keep the probabilities on our side, then we ought to concentrate on tape reading, after the 0,618 retracement level is reached. Get your entry confirmed and put out your stop , and enjoy

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  #59 (permalink)
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Ok Thanks

George:

My tape reading skills leave a lot to be desired that's why I gave up discretionary trading, too many decisions for me ment a down sloping equity curve. So I use Harmonic Trading in systematic form. I'll continue to follow your thread and see what I can apply in my trading. Just wanted to clarify too avoid confusion on my end.

Thanks..

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  #60 (permalink)
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here's a nice one for ya...

bullish ABDC pattern

BTW MIKE sorry if my workspace looks like yours but i really enjoyed your colour choice

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