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Harmonic Trading


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Harmonic Trading

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  #1 (permalink)
 George 
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Harmonic Trading, well what's that?

It's based on patterns that are present in the nature highlighted by the golden or the divine ratio, discovered by Fibonacci.

So what's the deal?

It's a way of showing you where you are, where you'll end and what's going to happen if you won't get there.

How does it work then?
By the way, it's developed by Larry Pesavento and co, and it's the result of many years of observation and hard work in the markets.

Why should you use harmonic trading?

Well, nothing is going to give you a 100% accuracy but if you can use something that's filing up your needs, speaking of having the odds with you, and getting the right risk/reward relation, then keep on reading.


There are several patterns that can be used. I'm going to limit them to two patterns though. The first one includes the base of all, and it's called the AB=CD pattern. The second one is a continuation of the first one or better said it fills up the bigger picture. That one is called Gartley 222.


What's the AB=CD pattern going to show you?
It's going to show you how to:

. Identify a pattern with a low risk and high profit probability allowing you to trade market reversals before they occur

. Trade against the crowd putting you in the winning 5% as opposed to the losing 95%

. Be subject to less manipulation from the market makers, who tend to buy when you sell and sell when you buy

. Minimize your loses to a maximum of 21,4% of any trade

. Identify the exact exit point by reference to price and time

. Identify the entry without applying any indicators

. Take positions so that the risk/reward is in your favor

. Take money out of the markets!







AB=CD

This is what it looks like:



Now to the rules:

1: Price swing from A to B will be equal to CD 60% of the time. The other 40% of the time CD will be 1,27 or 1,618 of AB



2: The BC price swing will be ,618 or ,786 of the AB move. In very strongly trending markets the BC swing will only be at the ,382 retracement.



3: If the AB swing is very strong, it will give a good clue as to what to expect on the BC move.

4: The time bars from point A to B should be equal to the CD time bars about 60% of the time. The other 40% of the time these periods will expand to 1,27 or 1,618 of AB.

5: Should the CD price swing have a price gap or a very wide range bar, the trader should interpret this as a sign of extreme strength and expect to see price expansions of 1,27 or 1,618



So what have we?

We have a road map ahead of us by waiting for wave AB to develop. Simply and easy we wait and when it's determined we wait again, but now for confirmation.

When we got our, (and it easy too, because we get rid of all the if's and if's, all we have to do is to wait for two levels) ,618 or ,786 in this case a hit of ,618 and then a reversal from the level slightly above, we take the trade and put the stop 1-2 ticks above the level of ,786.

In numbers that means we take the entry at 1,4570 and we put the stop at 1,4573 + 1-2 ticks. That's a risk of 5 ticks (Instrument 6E -3range chart-, works in any time frame, it should increase probability by going into higher time frames though) 5*12,50 = 62,5 $. The reward is of at least (if CD =AB) 20 ticks. That means we get a reward of 20*12,50= 250 $. As you see it goes beyond the 1,27% level and it almost exactly hits the 1,618 level.

With the smallest level, that gives us a risk/reward of 1:4, which is pretty amazing, at least in my opinion.


Now, will it always work. NO! Nothing will work 100%. But when it works then it WORKS. And even when it doesn't work, it keeps you out of trouble by offering you a low risk, and by giving you a hint of what's going to happen next. It the price continues above ,786 and the pattern fails then the probability for the move to continue in the same direction is big.

Does it sound simple? Well it is!

In my next post I'll describe the next pattern. Gartley 222. The probability for that pattern to develop into a valid one is of 85%.

Now, learn the pattern. Start looking for it in your charts, and remember that it is simple and easy. If it sounds to good to be truth, then you're probabably -you against you-, which is the most common way to screw things up in the markets.



I'm thinking that it would be a lot easier to have all this things on our charts by letting an indicator plot them for us. I've looked and there's nothing out there for Ninja. There's one "Butterfly" pattern developed by a guy in the Ninja Forum. But those patterns are not that useful in day trading because they are not that common.


So if yo guys want to give this a try. I'll be posting below some stuff I found that's made for meta trader ( I believe it's that one, sorry guys my knowledge's in that area are zero, but I understand that it's possible to translate them into Ninja.

I'll attach them and post some pictures too.

Here is the AB=CD pattern



BPS 1-2-3 Pattern.zip



And here's the one for Gartley 222



and the file (I renamed it to .doc in order to be able to post it, it should be .ex4) :

BPS-Harmonic-Patterns.doc


And here's something called ZUP (a zigzag universal with patterns Pesavento) :
I believe this one is the most complete, including all the patterns.
the file:

ZUP_v67.rar

and the document describing this guy's work.
part 1

Harmonic Trading-zup.pdf

and part 2
Harmonic Trading-zup2.pdf



And in case that should not be enough, I found a site with the code for Gartley 222, dono if it's good, but here's the link:

TS SUPPORT :: View topic - Pesavento Patterns Indicator for MultiCharts



That's about it guys, for now!

Trade safe, and concentrate on your loses, the profit's taking care of themselves!

/George

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 TraderJesse 
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Good write up George, Harmonic methodology is my prefered way to trade.

Here is a free 300 page ebook link HarmonicTrader.com - "The Harmonic Trader" .pdf A good resource on Harmonic trading. Hope you like Butterfly patterns too. I wished they all turned out like this Bearish Butterfly.

Jeff


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 George 
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Thanks Jeff,

I'm reading it right now. Yeah, imagine they all turned out like that one. But still, when you put the method and the pattern in comparision with everything out there, they beat them all, and it's so "all included" as well! It keeps the trader out of the emotional swamp, by projecting out the road map.

/George

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 Big Mike 
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Nice introduction George. I would like to learn more about this method, and I will try to assist with the programming part too if I can.

I was doing some research on this and was posting to upload the Harmonic Trading free PDF, and I noticed TraderJesse beat me to it. His is a link to the pdf, I've attached the PDF here to make it even easier.

Mike

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 George 
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Thanks Mike!

/George

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 keepdchange 
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Thank you George for this great topic. My only question is, in order to get the most out of this system, we have to be able to identify the wave AB. Since everything else evolves around AB. We have to know where the wave AB starts from and where it ends. I believe that is the most important puzzle to the whole thing. It is easy to see the waves after the fact, but in real live trading, we have to know where the wave AB starts and ends. I would appreciate any feedback you might have.

Thanks
-Keep

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 George 
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Keep,

You're welcome.
First and foremost identify the trend. Take a look at the bigger picture. For instance, put up a chart with a frame of 60 minutes:


Here you can see that the trend is down. That means that you only take trades in the direction of the trend.

Now you zoom to (I zoomed to a 8 range chart, zoom to whatever you want or use)
a chart with a smaller time frame.


Wait for the wave to end. And then you got your AB relation.

You can clearly see that, even when it fails it keeps you out of trouble, which means that your money is safe and they can be used in a trade with good odds.




I hope I answered your question!

/George

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 keepdchange 
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George, thanks for the explanation, but I don't think I can follow you. On your 60 min. chart we see the trend is dow, Then we look at the 8 range chart. Now, in that chart there are so many waves formed. How do you know which one is wave AB. Is there just one? Are there more than one? Could you identify these waves on the chart.. Again we are looking at a chart which has past in time. It is to see the waves. But when you are live, how do you determine that?

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 George 
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Keep,

You're with me on the first one I see. You should look for shorts. When you zoom. I'm zooming live on this own below:



Edit: Sorry the value on the chart should be ,786 not ,768

Chart taken at 13,03 my time

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 George 
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In other words, look for a swing in the direction of the trend (a top, with a bottom confirmed when it's not continuing in the same direction). That's how you'll get your A-B. Put out your FIb retracement, and wait for the retracement to go ,618 or ,786 (,382 if the movement is strong). Take the trade if you get it confirmed (hitting those targets and then reverses from there). Put your stop (if you get in at ,618, put it at ,786 +1-2 ticks, if you get in at ,786 then put it slightly above).

Now, relax and enjoy. The probability of getting ticks on these is pretty high (it almost always react, but not always follow through) and with a good money strategy you can almost avoid to get wet at all!

Is it more clear now?
/George

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 websouth 
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I will need to look at the numbers you are talking about . I have been using the fib extension tool instead of the retracement tool. A trick I learned from Gio on this board. It provides pretty safe entries. I think it is the same numbers just inverted..... looking into it now.

I draw A-B and C. Then wait for the price to make a decision to fail the retrace and go back thru the 0 line or confirm with a move up thru the 50% line (green). This is entry at the latest. Then looking for price to shoot through the 100% line. (seashell) If price goes thru this and comes back immediately I exit with breakeven or small gain. If price contines thru the 100% line then the target is the 127/161 (fuschia) area look to take profits here. If continues then next area is 231/261 (dark cyan) and final target is 423 (seashell). 423% is a great day...

Price really seems to respect these levels...

In image below I was hoping for a long but it could have gone either way. Confirmation was break of green line (50%) A break to the downside would have just set up in the opposite direction....




Also I use the tool to look for tops... If momentum seems to fading. The put the "tool" on and watch. If price can't make it past the 100% (seashell line) then look for more weakness.


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 keepdchange 
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Yes George, Thanks. My questions really is, in your last attachment for example, why are not the waves previous to the one you are showing A-B waves. How come you started showing the possible point A from there and not before.

Thanks
-Keep

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 George 
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Websouth,

Thanks for the input. But isn't the effect of what you're describing giving you somehow random probabilities?

What you're describing is not Pessavento AB=CD, because it lacks the relationship BC = ,618 or ,786 of AB

What I mean by random is that it doesn't respect the harmonic retraces of ,618 or ,786 (,382 if strong move). The BC which is the key in this case is random. The way I understand it, you could be jumping on any pullback, as long as it's a pullback!

Just my 2 cents.
/George

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 George 
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keepdchange View Post
Yes George, Thanks. My questions really is, in your last attachment for example, why are not the waves previous to the one you are showing A-B waves. How come you started showing the possible point A from there and not before.

Thanks
-Keep

Keep,

They could be, put a retracement on them and measure them. See if they respect the rules, if they don't it means that the AB=CB relationship doesn't exist. What you want is the odds with you. Imagine you are out there with a stick, measuring stuff, when you've found the thing you're looking for and it fits your stick, then it means it's gone work well, with your expectations. And your expectations are based on the value of your stick.

Or imagine this. You're looking for a constant value of 10 bars. If we look at a chart with a frame of 3 ranges for i.e. then you might get a range from 1 to 5! So each bar represents 3 ranges, and what you want is the value of 10 bars.

Now if you take a bar of 10 ranges, will you then get another range value? Yes you will!
But nevertheless the relationship hasn't changed! You still have a value of 10 bars.

So in this case if you measure the top from another position, you're still looking for that value of retracement. Aren't you?

R u with me now?!

/George

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 keepdchange 
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I have to look at it in a closer detail I think. Thanks for the explanation. My experience with waves has been that let's say market drops from point A to point B, then it retraces back (and they usually do by .38, .5 or .618). Most do that. So does that mean each one is a wave AB?

Thanks
-Keep

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 KJAVED 
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The answr to Your question is simple. To understand Harmonic patterns some one must have sound knowlege/understanding of Elliot waves and Fib. For Elliot waves you must look for good ZigZag Indicator. Some are available free on this forum as well as on Ninja trader forum. But all just works up to certain level. So I advise you to look into market for some good Elliot wave tool. Then make your self well trained in Elliotwave count. After that make lot reading on Fibs and read charts or their proper application. As Elliot wave and Fib have very close relation to each other and always keep you on write side of market. I spent a complete year to study them. Now I am comfortable. Once you get all this, then Its very easy for you to see harmonic patterns and pattern with in patterns. Answer for AB indification, it can be be any wave. I hope may be These few words helpful or you.

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 keepdchange 
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Thank you KJAVED. Would you be able to recomend any Elliot tools?

Thanks
-Keep

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 Big Mike 
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Here is a AB=CD example PDF with illustrations/charts.

Mike

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 gio5959 
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keepdchange View Post
Thank you KJAVED. Would you be able to recomend any Elliot tools?

Thanks
-Keep

keepdchange

the best wave tool is the elliot osc found at ninja forum

however, im lazy and use MTP which i got from rich's ttt
,
take care

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 websouth 
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This indicator will probably do the searching as far as finding qualifying retracements.... Because the fib draw tool is a stock ninja feature I don't think you can edit it or call an edited version. You can click on it and edit while on your chart but a refresh goes back to standard settings as far as the fib - showing all the levels and the text description. It would be nice to show clean just the 3 levels you mention as in screen shot...

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 George 
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Guys

Here are the rules for Elliott Wave. Very simple and very neat. In order to get a valid Elliott Wave you need to follow three main rules:


(Before the rules though: There are impulsive waves (with the trend) and corrective waves (against the trend)

So what have we?

3 Impulsive waves and 2 corrective waves (5 waves)

So if we start with wave 1 (impulse) after that comes wave 2 (here comes the first rule)

1.
Wave 2 is not allowed to retrace below the bottom of wave 1 in order to be valid.

after wave 2 we get wave 3

2. Wave 3 is not allowed to be the shortest of the impulses (wave 1,3 and 5). Remember the shortest it's not saying that it should be the longest.

and then we get wave 4 and the last rule

3. Wave 4 is not allowed to go below the top of wave 1.


Here's a picture:



After that we have the rules for the correction patterns, but that's another story!

Here's a link in case someone wants to go deep(er)!

https://www.elliott-wave-theory.com/elliott1.html#general


Now, a few words of caution. First about the indicators that's out there and those goes for the ones that apply to NT.

The oscillator that gio's describing is more of a confirmation tool, and it's not plotting waves or anything at all. In case you don't know how to count waves manually it's completely worthless.

There's a wave counting tool made for Ninja and can be found on the (NT)forum. It's a bad one as well. I've had it on my charts and gave it some space. After my short observations, it seems to me, that is not respecting the rules. So avoid that one too.

The last word of caution, it takes some time to become an "expert" on EWT, and not because of the simple rules, but because of the rules for the corrections and all those IF'S. So please be nice to yourselves and don't use it in real trading until you master it. And even when you master it, it's still subjective somehow. The best way to use is in order to identify the trend.


Last words on this. Please do not confuse Fibonacci with EW. It has nothing to do with Fibonacci or harmonic patterns. It's the other way around. EW is using Fibonacci aid. That's it!


Trade safe!

/George

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 gio5959 
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George View Post

The oscillator that gio's describing is more of a confirmation tool, and it's not plotting waves or anything at all. In case you don't know how to count waves manually it's completely worthless.
/George


with all due respect, i hate to differ with you - using a simple tool like this will alert you as to what wave you are in - which is very important to the novice waver (macd will do the same with the same settings)

why use it;

to anticipate the entry of wave 3 - to anticipate the entry of wave 5

to stand aside in wave 2 - to stand aside in wave 4

with mtp there is also a strength meter to gauge the strength of the waves - but this can also be accomplished with the ma on the script from ninja

the confirming tool for any selfrespecting waver is the use of the plain jane stochastic with default settings

take care

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 shodson 
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keepdchange View Post
Thank you KJAVED. Would you be able to recomend any Elliot tools?

Thanks
-Keep

Back when I traded options I had some success with ProfitSource from Hubb Financial which plots elliott wave counts and has nice price projection tools, which I used for options trading for picking strike prices and expiration months. Here's some trades I had with this. VRSN GOLD It even has a scanning tool that lists instruments that are wave 5 buys or wave 5 sells.

The problem I've had with EWs is where do you start the wave count? It all seems so obvious in hindsight, but not so much in real time.

Corey Rosenbloom is a big proponent of Elliott Wave as well.

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 George 
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Please guys, I would apreciate it very much if you could stick to Fibonacci patterns in this thread. By involving Elliott in this one, it's going to confuse people. Maybe gio or somebody else would like to start a EW thread. I'll be more then happy to contribute in that one, but let us not get confused in this one.

Thank you!

/George

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 gio5959 
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George View Post
Please guys, I would apreciate it very much if you could stick to Fibonacci patterns in this thread. By involving Elliott in this one, it's going to confuse people. Maybe gio or somebody else would like to start a EW thread. I'll be more then happy to contribute in that one, but let us not get confused in this one.

Thank you!

/George

you used the word confuse twice

maybe you should go back and re-read page #222 (im sure you know what book im talking about)

M and W patterns are corrective moves and happen mostly likely in wave 2 and 4

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 George 
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Gio,


Let me remind you of this forums line. "Traders Helping Traders". We're here to help out one another, not to show off. If you have something that you'd like to contribute with and help this thread in a constructive way! Please be my guest!

Thank you!

/George

PS: And what I mean by being constructive is, explain your stuff as if you were explaining it to a two year old kid. You have to wear in mind that there are two kind of people out there (in this case). The ones that doesn't know anything about it at all, and the "experts". Everyone should be able to benifit from eachother. And I hardly think that one can benifit from your posts if they're not developed properly. If someone asks you to guide them to an Elliott indicator, I hardly think you can guide them right by showing them that indicator. And by the way that picture of yours can be anything regarding to EW.
Now, in case I would have wanted to be constructive, then I would have given the details and helped people on the track!

With all due respect, be explicit, don't be lazy, you're the one benifing from it at last.

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 George 
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gio5959 View Post
you used the word confuse twice

maybe you should go back and re-read page #222 (im sure you know what book im talking about)

M and W patterns are corrective moves and happen mostly likely in wave 2 and 4



............and by the way take a look at your wave 3, and tell me in which way that's a valid wave three.....your wave 3 (3) is the shortest. And how does your 4 (4) fit into a Flat. And your 1 looks definitely like a 1 picked out of a book!

/George

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 gio5959 
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Gio,

Let me remind you of this forums line. "Traders Helping Traders". We're here to help out one another, not to show off. If you have something that you'd like to contribute with and help this thread in a constructive way! Please be my guest!

PS: And what I mean by being constructive is, explain your stuff as if you were explaining it to a two year old kid.

i think you've insulted the intelligence of the people here but nonetheless,

i wrote this in 2 year old language (with pictures and colors)

on sept 23 (autumnal equinox) there was an expectant reversal - corrective move

color coded in red - price proceeded to decline, as expected, and found support at aprox 1036.25 then proceeded to retrace to aprox 1065.75

color coded in blue - price then proceeded to decline to inverse target projections of 1025.25 and 1019.75 ((i.e. measured move) (inverse of .707 is 1.413 and inverse of .786 is 1.272))

color coded in green - gann vibration was also expected at apex 10-02-2009

you may not know this but the majority of my post and charts have been well anontated - big mike himself has thanked me for that and has thanked me for sharing different insights

i think you should apologize for your disrepectful comments

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 George 
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gio5959 View Post
i think you've insulted the intelligence of the people here but nonetheless,

i wrote this in 2 year old language (with pictures and colors)

on sept 23 (autumnal equinox) there was an expectant reversal - corrective move

color coded in red - price proceeded to decline, as expected, and found support at aprox 1036.25 then proceeded to retrace to aprox 1065.75

color coded in blue - price then proceeded to decline to inverse target projections of 1025.25 and 1019.75 ((i.e. measured move) (inverse of .707 is 1.413 and inverse of .786 is 1.272))

color coded in green - gann vibration was also expected at apex 10-02-2009

you may not know this but the majority of my post and charts have been well anontated - big mike himself has thanked me for that and has thanked me for sharing different insights

i think you should apologize for your disrepectful comments


Gio, I have no problem apologizing. So please accept my apologies. But I do have a problem with your intentions in this thread! Would you mind telling me about them?!

Thank you in advance!
/George


PS: And by the way, I think you might have confused your picture with some other thread because I'm not able to find any trail of it in this thread!

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 caprica 
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anyway....

do any of you wave-counting/pattern finding guys use Dynamic Trader or Elliott Trader or MTPredictor or Advanced GET? curious as i have toyed around with some of this stuff but have a hard time finding the patterns on my chart without the aid of something like a program marking certain points.

"Let us be thankful for the fools. But for them the rest of us could not succeed." - Mark Twain

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 gio5959 
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Gio, I do have a problem with your intentions in this thread!

what are you talking about? - have you ever heard me try to sell anything here (i admit have referred traders to paid services which i find extremely helpful but, i pay for those services myself and get no promos for that)

i do nothing but give some helpful tips ive picked up in my many years of trading

im respectful and curtious to all traders and never come on as a know it all cause i sure as hell dont know it all - ive even told other traders i'd be willing for this old dog to learn new tricks

obviously im not appreciated

on a lighter note - in case you cant see my previous post - this is a 15 min chart using a 34sma to guide the elliot wave and ab=cd (measured move) - gartley pattern is well documented and is in compliance with the 34sma - inverse fib targets are also in compliance

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 George 
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gio5959 View Post
what are you talking about? - have you ever heard me try to sell anything here (i admit have referred traders to paid services which i find extremely helpful but, i pay for those services myself and get no promos for that)

i do nothing but give some helpful tips ive picked up in my many years of trading

im respectful and curtious to all traders and never come on as a know it all cause i sure as hell dont know it all - ive even told other traders i'd be willing for this old dog to learn new tricks

obviously im not appreciated

on a lighter note - in case you cant see my previous post - this is a 15 min chart using a 34sma to guide the elliot wave and ab=cd (measured move) - gartley pattern is well documented and is in compliance with the 34sma - inverse fib targets are also in compliance


Gio,

This is my last post addressed to you!
I believe you've totally misunderstood the meaning of all this.
It's about sharing knowledge, not about showing off!

I started a thread on Harmonic Trading.
In the begging I put out the rules for the AB=CD pattern.
The thread evolved to include Elliott Wave.
I asked nicely everybody to keep Elliott Wave out of this, because it can get confusing, and Fibonacci is not about Elliot Wave.


It's completely idiotic to learn EW in order to find the Fibonacci patterns.
It takes a lot of time, and that time can be spent more rational on Fibonacci patterns instead of learning how to identify waves, in order to apply FP on them.


My opinion was that (and still is) if you direct someone to that indicator you mentioned is not gone help them in order to identify EW. And it's still about EW.

I believe your way of interpreting stuff is a bit impulsive as well, and you're referring to other stuff then what's been written in this thread.

I asked you a couple of questions about your wave counting but instead of answering, you asked me to appologise to you.


I apologized to you, and that was still not enough.

You might have impressed other people with your posts, but you're not impressing me with your posts in this thread.
I've spent some time trying to give you an opportunity to be constructive in my thread, but all you do is to keep on defending yourself.


My conversation with you is over. If you still feel like you want to contribute in a constructive way in this thread -meaning: BE EXPLICIT and bear in mind that a lot of people are not familiar with neither EW or Fibonacci- then please be my guest.

But if you continue with all this nonsense, that has nothing to do with Fibonacci, I'll ask the moderator to close the thread!

Thank you!

/George

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 George 
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Al right. In order to simplify things I'm going to show you how to use the Fibonacci levels from the start. I know there might be some confusion about when to start the measurements, and if every wave is or should have an ab=cd relation. And yes the answer is YES.

And yes you can start the measurement wherever you want. Remember we're not trading waves here, we're concentrating on the relationships that's out there.

I've picked the most recent market relation that's out there right now (from about 14:06 -NYtime + 6h- to 18:09 -5 range chart instr 6E)

I've zoomed this period specially because it's choppy. You can see in the pictures that there are several numbers of way to do this. And that the last one -(last picture) which is according to live trading also drawn on the chart- looks as if it's going to unfold into a good move.

So we're looking for relations according to these patterns. And when the relations aren't met, then it keeps us out of trouble. When they're met then we get the odds on our side.














/George

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 George 
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Remember that the key word is SYMMETRY. One good thing would be to start training the eye in order to identify the symmetric relationship between the swings.




/George

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 George 
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As I go along with this I'm going to post rules, lines, key's and other stuff that's necessary to be aware of and use in Harmonic Trading.

See it more as a journey with bits and puzzles that we're going to be able to put together in order to get the whole picture when we have them all.

I'm going to post as I have time!

/George




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 George 
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What we're looking for is a way of identifying "Potential Reversal Zones". That means where there's a potential are for a reversal.

History has proven that a convergence of Fibonacci numbers and price pattern provide a highly probable area for a reversal. When such a congregation of numbers occurs, it is possible to assess an optimal point for taking a trade, while defining a loss limit that it is very small relative to the potential profit. This area of convergence is called the POTENTIAL REVERSAL ZONE.


The key to utilizing these harmonic measures when analyzing a price chart is to determine the area where the greatest amount of calculated ratios congregate. When three, four of even five numbers come together within a specific area as defined by their respective structure, you must respect the high probability for some type of reversal.

If a valid reversal does occur, often the price action will typically bounce quickly from the area, holding in the reversal zone for only a short period of time. However, if the reversal zone is invalid, the price action usually will be extreme and will provide clear signals that this trade opportunity is to be avoided.


IDEAL BULLISH REVERSAL

In an ideal bullish reversal, it is important to see a bullish price bar in the PRZ. Ideally, a bullish continuation will validate the reversal.



This of course is an ideal situation. BUT, price action that reverse in such a way after hitting a Harmonic area IS an ideal situation. It is important to get a good follow through as well, by having a price action that has higher highs and higher lows.


IDEAL BEARISH REVERSAL






INVALID HARMONIC SET-UPS


Markets often gives us clues to determine future price action. In other words the market will provide evidence of "probable future action".

It is important to read these signs that the market offers to gauge the next potential move.
There are three primary signs:

1. Price Gaps
2. Tail Closes
3. Abnormally Large Price Ranges


It is very common for price gaps to occur in a Potential Reversal Zone. A price gap occurs when the price action opens beyond the previous close, leaving an open area where no trading has occurred. A price gap in a PRZ indicates that the set-up is to be treated with extreme caution. It is important to respect an extreme sign like this because a price gap indicates a significant change in sentiment.



Price gaps in the PRZ are the most frequent and the strongest of all of the warning signals. A price gap is an extremely significant indicator of an invalid set-up and will keep you out of many bad trades.



TAIL CLOSES


Price bars that close at either the high or low. TC suggest extreme price action that is to be respected. Therefore, when a tail close occurs after hitting a PRZ, it is prudent to exercise extreme caution.



When price action closes at the high or the low of the day, it indicates sentiment that is overwhelmingly strong. If you contemplate this action, you understand that it idicates that the majority of the participants trading that particular market are extremely biased in one direction. A TC is a clear signal to step aside and let the market give you the signals of when to enter a trade.



EXTREME PRICE RANGES


EPR reflects a very strong trend. One way to determine if a price range is extreme is to compare it to the average range. As a rule of thumb, if a future trades greater than two times its average range, it can be considered extreme. However, it is not necessary to calculate this comparison, because an extreme price range should be practically obvious. (Remember this is not working with range bars, because they're all equal)



Normally EPR reflects exhaustion. Meaning that we could be getting a reversal from here, but remember that in order to get a reversal we also have to get it confirmed by higher highs/lower lows in the continuation of the price action.
In order to be safe, it might be better to respect it a non potential entry set up.

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 George 
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WHAT HAPPENS IN CASE THE SET-UPS ARE BLOWN OUT?

We get a very significant information about the primary trend. Since a PRZ is a critical area to examine, the price action will indicate a great deal about the current trend. In the case of a blowout, the price action will indicate that the predominant trend is very strong, especially if the future continues beyond the PRZ.


The most imporant consideration when assessing a warning sign is the price action after the future (the instrument you're trading) enters the PRZ.
Now and then it will reverse and provide you with the right set-up, despite such warning signs. So it is important to wait for the market to provide some type of confirmation for the reversal.
When a set-up is extremly harmonic- possessing three or more numbers in the PRZ-the opportunity can still be valid.
However, waiting at least one price bar will prevent you from "jumping in front of a runaway train".
As mentioned before the principle of continuation will be very indicative of the validity of the reversal. Price action that continues in the predominant trend beyond the PRZ will definitely invalidate the trade.

However, if the price action reverses after a warning sign, it might signal that the harmonic area still is a valid trade opportunity. Sometimes, it is prudent to wait even a few price bars for a clear reversal signal.



SUMMARY


My hope is that we all are going to benefit from the information that will follow in the next future posts and to get a truly change of how we're viewing the markets.
The goal is to clearly illustrate that these methods are reliable in order to determine critical areas of support and resistance within price trends.

The harmonic techniques are most effective when one is patient. These opportunities will materialize frequently, providing ample opportunities to be consistently successful.

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 TraderJesse 
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George

I trade Harmonics in a slightly different manner when it comes to confirmation. I don't wait for it. In my previous trading I was always looking for confirmation of trend change or reversal and I was always late to the trade. That's why I like Harmonic trading, it allows me to set entry, stop, and targets ahead of pattern completion. So for me, I am looking for the pattern to complete within the rules I set for execution. My risk is defined ahead of time so sometimes it may appear I am stepping in front of a speeding train, but it's amazing how many times the patterns hold and the price action reverses in the expected direction. Do I have trades that never reverse and run right on through my stop, YES. I am not always in front of a screen daily so setting up a trade in this manner leaves me with a confident feeling for a high probability trade to be executed and I can live with whatever happens.

Jeff

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 George 
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Jeff,

Thanks for your input. And yes it's true, that's the beauty of Harmonic Trading. It gives you a road map. Knowing where you are, and knowing where you're going excludes a lot of noise in trading and allows the trader to master the emotions in a better way. One gets rid of all the what IF, and most of all the uncertainty for the future that a bad trade can give you. In other words, one stops the fight for surviving knowing that the probability is always on ones side.

/George

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 TraderJesse 
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George

Do you primarily trade continuous contract instruments, futures and currency with Harmonic trading? Do you align your trades with an overall trend bias or do you take counter-trend trades based on the pattern? Example, would you pass on a bullish Gartley trade at the top of an extended uptrend? Maybe it's easier to just ask do you filter patterns? Do you trade any stocks or ETFs with this methodology?

Jeff

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 George 
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Jeff,

No, no stocks. Early in my career I traded stocks, but they're very much manipulated by the market makers. Futures are less manipulated and I prefer to trade them. And yes, I'm keeping my trades aligned with the trend. I've always been the revolutionary guy, going against the heard, and I have to admit that I still like it, but I've learned over the years that one has to be careful with that and balance the "going against the heard" thing in a proper way. The heard can turn into a beast on crack!

How about you?!

/George

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 TraderJesse 
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George

I got run over 1 too many times trying counter trend trades. So currently I am only going with the trend. I use 60 minute on day trades for trend ID and weekly charts for trend ID for swing trades off daily charts. I like 3 and 13 minute charts for day trade entry and I trade from 60 minute charts for what I call short swings 3-5 days and daily charts for 5-15 days.

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 whitmark 
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Fwiw, another excellent resource for harmonic trading is "Trade Chart Patterns Like the Pros," self-published by Suri Duddella and can be found at www.surinotes.com. In addition to a preview of his book, you will also see numerious screen captures of him placing trades using these techniques on both equities and futures.

Whitmark

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 Big Mike 
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whitmark View Post
Fwiw, another excellent resource for harmonic trading is "Trade Chart Patterns Like the Pros," self-published by Suri Duddella and can be found at www.surinotes.com. In addition to a preview of his book, you will also see numerious screen captures of him placing trades using these techniques on both equities and futures.

Whitmark

I agree. I've owned this book for a while, it's a great resource.

Mike

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 TraderJesse 
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I saw that book listed on another thread, It's next on my list.

Jeff

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 websouth 
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some good examples here from suri
https://www.traderslaboratory.com/webinars/suriDuddella_TL_Oct2408.pdf

but also more on the geometric side
https://www.traderslog.com/

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 sefstrat 
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All markets are manipulated, and due to the cointegration between markets even the ones which are hard to manipulate will be manipulated indirectly. You are right that stocks are usually the easiest for operators to manipulate due to the rules of specialists/market making on the various exchanges but manipulation is rampant everywhere.

Just open up some charts of obviously related forex pairs and observe for a while if you don't believe me. Operators on the forex market love to 'make the rounds' by handling one set of currencies while holding other related ones still, then they usually switch it up and push the ones that were being held against the direction you would intuitively expect to knock traders out of their positions (stop hunt) and/or trap them into bad positions before rapidly bringing it back into alignment with the related crosses.

Such manipulations are routine and blatantly obvious when you know what to look for. That is why understanding how the operators work is the most powerful tool you can have on your belt. Note that there is no one set formula, different markets will be manipulated in different ways due to differences in exchange trading rules or differences in volume, transaction costs, etc.. hence why screen time closely inspecting the action of various markets is invaluable.

Understand the market dynamics, find the important signals to look for.. then go about looking for or designing an indicator to isolate and detect those signals. That is a crucial mistake most people make, trying to go about it the other way around.


George View Post
Jeff,

No, no stocks. Early in my career I traded stocks, but they're very much manipulated by the market makers. Futures are less manipulated and I prefer to trade them. And yes, I'm keeping my trades aligned with the trend. I've always been the revolutionary guy, going against the heard, and I have to admit that I still like it, but I've learned over the years that one has to be careful with that and balance the "going against the heard" thing in a proper way. The heard can turn into a beast on crack!

How about you?!

/George


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 wh 
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to get a view about the trend and like to pattern 123 or ab cd you can build a chart enviroment ...

i posted in a other thread but here is also good. i like the words from traderjesse

here some infos https://forex-strategies-revealed.com/advanced/trend-line-trading-strategy to combine with 123, abcd and mml


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and how Fib extensions be used for target predictions.

Chart is kinda busy but you can see 2 AB=CD patterns that are clean with retrace and extensions.


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Who and what is/was Fibonacci?

Leonardo de Fibonacci was one of the greatest mathematicians of the Middle Ages. He's the one that introduced the Arabic art of Algebra to the Roman civilization, meaning that he introduced the numbers we use in the world today. Till then we used the roman numerals (I = 1, II = 2, III = 3, IV = 4, V = 5 and so on). He also studied the Pyramids of Egypt.

Thanks to that he discovered the Golden Ratio.

The sequence of the Fibonnaci numbers is quite simple:

0,1,1,2,3,5,8,13,21,34,55,89,144 ---------------------infinity

Starting with zero and adding one begins the series. The calculation takes the sum of the two numbers and adds it to the second number in the addition.

(0+1=1)...(1+1=2)...(1+2=3)...(2+3=5)...(3+5=8)...(5+8=13)...(8+13=21)...(13+21=34)...and so on


When we look beyond this eight sequences of calculation we find that there are constant relationships. If we divide the former number by the latter, it yields ,618

34/55 = ,618181 ~ ,618
55/89 = ,617977 ~ ,618
89/144= ,618055 ~,618
144/233=,618025~,618

and so on...

If we divide the latter number by the former we get this:

55/34= ,1617647 ~1,618
89/55= 1,618181 ~1,618
144/89= 1,617977~1,618
233/144=1,618055~1,618

and so on...


The ,618 and the 1,618 are two of the four Fibonacci -related numbers that are used to consider price action harmonic. The two other numbers that derives from the series (0,786 and the 1,27 ) are the square root of the 0,618 and the 1,618.


These four numbers have been found to exist in many natural and man-made phenomena. The ,618 and the 1,618 constants from the series are found in the Great Pyramids. We find this on the human body. It's out in nature. And they're even present in the markets. They frequently occur in price charts on all time frames. So, the primary concept to grasp is that these numbers exist for a reason. As you begin to incorporate these numbers into your existing chart analysis, you will realize that these measurement techniques are effective tools in gauging price action.

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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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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.



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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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.



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):



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


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Live trading on CL 233 ticks. Retracement confirmed at 17,37 GMT+1h 0,618.


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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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and the development:


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 TraderJesse 
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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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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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 TraderJesse 
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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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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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btw! What happens at the top reverse point?? what kind of reversal is suposed to happen?

in the case ive posted, at the targeted reversal point (after that huge rally) it developed a double top, and came back down... is this typical behaviour?

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On an AB=CD pattern D is always your pattern completion or potential reversal point. I backed the chart up using a 60 minute chart. I think it shows you what you want to know. You had an AB=CD inside a larger one. The inside AB=CD actually extended the CD leg to the 161.8 point of the AB leg. Your inner pattern actually provided no signal at the 1099 area, the larger outer AB=CD did. George will probably explain it better.

Jeff

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 DavidHP 
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TraderJesse,

Are you drawing the A B C text on the chart manually or is there an indicator that does that in Ninja?

Tks,



TraderJesse View Post
and how Fib extensions be used for target predictions.

Chart is kinda busy but you can see 2 AB=CD patterns that are clean with retrace and extensions.



Rejoice in the Thunderstorms of Life . . .
Knowing it's not about Clouds or Wind. . .
But Learning to Dance in the Rain ! ! !
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DavidHP

Manually, I draw the AB leg then do Ctrl-C and Ctrl-V which copies that line and I drag it into place for the CD leg projection. The BC leg is drawn manually too.

Jeff

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hey dude thanks for the reply.

I was amazed to check that the ABCD pattern ive found, just made up the upper leg of the bigger ABCD pattern. that was cool.

But actually, the inside ABCD pattern ive found did give out a reversal sign!

if you check the printscreen ive posted, on the first fibonacci scale i drew, at the 1,618% point ( =around 1100) i was expecting a reversal so i drew a blue horizontal line there...

and the price has risen ever since, up to that point, and around yesterday i guess it double toped and came back down.

Thats exactly why i asked what was suposed to happen at this reversal point.

I'm seeing a double top... what do you think?

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sorry, my bad.

Actually you cant see the blue line i drew at 1,618% that i was talking about on the last pic ive posted... BUT HEY it was there anyway xD

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 George 
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TraderJesse View Post
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..


Jeff,

Thanks for your input, it's an nice one and is very important as well!
Let's take it step by step. When you're trading a system, you're looking for the set-up to take place. How that looks, is different from case to case of course. But it includes some rules that says if that and that, then that and that.

In this case, what we're looking for are the HR (HarmonicRelations) in price (and time). So, if price action (retraced) measured from one point to another hits the level of ,618 then it means that you have found the HR, and the criteria for the pattern is fulfilled.

However, because there aren't any guaranties out there (because of the chaos - it takes only 1 actor to change historically repeated price (pattern) action), the next step is to identify the PRZ (PotentialReversalZone).

Step one is already fulfilled by the action hitting the HR (0,618). Step two is to look at the action that occurred while hitting the HR.
We have to go on thinking in probabilities. Unfortunately we can never rely on the IF that Then that, but we can use some hints, and use the risk equation in order to find out if it will develop in the desired way!

I believe that, if traders STOP thinking in terms of HOW MUCH MONEY they could recover (I'm saying recover, because most traders are loosing money), and start thinking in terms of Let's find out what happens,It's like going to the movies, you've read the review, you've listened to your friends, but you still have to pay for the ticket in order to spend your time sitting on your a.. during two hours! Are all movies good?! NO, but you still have to pay the ticket in order to find out. (in case you're not paying for the ticket, you still have to pay with your time).

The beauty of trading is that you don't even have to stay til the end, if it's not good, (well, of course that's in case you're not getting hypnotized by a bad movie, and you just have to find out how it ends).

However, back to step two. What step two helps you with, by looking at the relations of the action that completed the HR, is to give you a map of what the current mindset of the crowd looks like. (GO to post #36 and have a look).

Step three is to identify if any of Non PRZ (Remember PRZ is the area where the HR are fulfilled, -normally 2-3 ticks or points above/below the HR, depending on your time frame- and the point from which the potential to reverse exists) relations are there. (Post #36).

If we have Price Gaps/Tail Closes/Extreme Price Action, it simply means that the mindset of the crows is so anxious to continue with its momentum, that it will hit you very hard if you get in it's way! You never get on a train by putting yourself in front of it, you wait for it to slow down, and stop. However, there are moments when the train doesn't stop, but I will assure you that it will not look like it's speeding when it make it's U-turn.

So, if step three is on your side -meaning that PRZ is OK- you go to step four, which is to identify a good entry point. Does that mean getting in as soon as the HR is hit?
No, it means that you'll need a confirmation. In order to get the confirmation on your side and to keep your risk low you need to zoom into a smaller time frame. Imagine you're looking at a 60 minute chart, you could have a high range of price that will make you have a BIG stop. That's OK, as long as the price action develops in the right way, but you never know that, and in case the movie is bad, you don't want to pay overprice for the ticket, right?

That's why you switch to a lower time/range frame. And you go to step five, meaning that you use your set-up criterias. This is, however you chew it and speet it out still including the same essence. By that I mean that there's nothing discretionary about this. If you have a hard time executing is because you're way to much in your past. Meaning that you rely on former experiences, looses, missing out, etc...

So doing it mechanically is good. There are several methods. Remember we're talking about a reversal. And reversal means an U-TURN. Let me see if I can plot this in here:

|
|
|_ _/_ _
| /
|_/

We have Key Reversals, We have failure swings, We have 1-2-3's, And I'm sure there are several, pick one that suits you. If you are tottaly into indicators and MUST use one, then use an indicator that is based on price action. Here's one that's worth taking a look at. It's called Scalper and it plots a signal after 3 higher closes or 3 lower closes. (I've just put it on my charts, and I'm still observing it, and it seems that it plots the high/low instead of the close). Any help will be appreciated in observing and developing it.
The use of it, is that in convergence with the PRZ it helps us to confirm the U-TURN.

Here it is:
https://futures.io/free_downloads/ninjatrader/indicators/

Step six, take your entry. Step seven, put out your stop. Step eight, lay back and enjoy the movie. Step nine collect

A short summary.

STEPS:

0. Prepare yourself mentally by learning to identify HR before you start trading them.
1. Identify the HR
2. Study the action where HR have taken place
3. Identify if the PRZ is valid
4. Start looking for entry
5. Have the criteria met for you set-up
6. Entry
7. Put out your STOP
8. Enjoy (and that goes for whichever outcome)
9. Collect (or do yourself a favor and erase the experience, whether is good or bad, a clean mindset helps you stay in the now, where all action is taking place)

Do you think that these steps are to many?! Then just think of how many ways you could be dressing yourself in the morning, still you JUST DO IT!

Trade safe, and the money will take care of it self!

/George

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Bullish/Bearish ,768 Retracement


The next area to grasp in Harmonic Trading is the 0,786 level. Same rules applies to the ,786 retracement level as for the ,618 retracement. If the price action continues through the ,618 level then we get our next support/resistance at the ,786 level.






The 0,786 is a very significant Fibonacci retracement. When price action is declining, it is a crititcal area for supprot before retesting the initial bottom. When price action is rallying and attempting to retest a recent high, the retracement can act as significant resistance. The key to gauging the 0,786 as a potential reversal point is to study the price action at the 0,786 ratio and assess the following move. The price action around the 0,786 can provide substantial inforamtion regarding the potential future of the price action.

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1,27 Projection

1,27 is important for several reasons. It is the first area to examine after the price action has moved beyond a significant previous point of resistance or support. In case of a break out, the 1,27 projection is the first area to either take profits or enter a short position. In the case of a break down, it is the first area for potential support, covering a short position or entering a long one.


Bullish 1,27 Projection

The bullish 1,27 projection is an important area to look for potential trade set ups. When price action breaks down past its initial starting point (at X), the 1,27 projection is the first place to look for potential support.




Bearish 1,27 Projection

After price action has broken above a previous high, the 1,27 is the first area to look for potential resistance.



After price action breaks out above a previous high, it is easy to believ the rally will continue for a while. Quite frequently, the price action will experience resistance above the break out point at the 1,27 and not yield much of a rally. Therefore, the bearish 1,27 is an important area to examine to determine the strength of a breakout.


Simply put. Have a look at the trend. Observe if it's up or down in order to define your entry bullish/bearish (for the set-up not for the trend). Find the latest retracement of the wave in the direction of the trend.

-Wave meaning to define/locate/state the last price action beginning point and ending.-
-Retracement meaning the recoil of that wave-

Project now the retracement by multiplying it with 1,27 (for i.e. retracement = 10 then projection = 12,7). Now you have your entry buy/sell point.

Remember, the key word here is retracement, you project the retracement in order to find the reversal point.

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Almost too good to be true!

Take a look at this. Current live price action, CL 89 ticks.



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1,618 Projection

1,618 projection usually indicates exhaustive price action. Often, when price action exceeds the 1,618, it usually represents extreme price action that is difficult to sustain. The 1,618 can also be considered as overbought/oversold since the 1,618 represents price action that is too extreme. Therefore reversals that occur beyond this area will usually happen quickly. When the 1,618 projection within a PRZ has been tested, the determination of the trades execution is imminent.


Bullish 1,618

When a bullish 1,618 projection occurs we can often assume that we're facing an extreme sell-off. When price action is declining, the trend can often become over-extended. Then 1,618 projection point can identify profitable set-ups, since price action that reverses from these over-extended areas can frequently provide sizable reactions.

Attachment 3679

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 TraderJesse 
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George:

Other than RSI I haven't been using indicators but I did download the Scapler and set parameters as you have shown. It doesn't seem to paint bars consistently. I followed it on a 2 minute CL and SPY chart. It painted a few bars but them just would put the indication arrow up and not paint bars. Although I did see the bar at 11:02 paint after the 11:48 bar closed. Refreshing the chart would then paint all the bars that should be painted, I think. So I not sure if it's working properly for me.

See attachments of CL bars not painting then refreshed CL. Black is the paint bar color. I added the indicator at 9:15-9:30ish on chart.

Also thanks for long write up, I got a lot out of it.

Jeff

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 George 
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George:

Other than RSI I haven't been using indicators but I did download the Scapler and set parameters as you have shown. It doesn't seem to paint bars consistently. I followed it on a 2 minute CL and SPY chart. It painted a few bars but them just would put the indication arrow up and not paint bars. Although I did see the bar at 11:02 paint after the 11:48 bar closed. Refreshing the chart would then paint all the bars that should be painted, I think. So I not sure if it's working properly for me.

See attachments of CL bars not painting then refreshed CL. Black is the paint bar color. I added the indicator at 9:15-9:30ish on chart.

Also thanks for long write up, I got a lot out of it.

Jeff

Jeff,

I'm glad you liked the long write.
Speaking about the scalper, I'm still in the observing mode. But what it does is to plot reversals on the third bar.

A reversal is when the price doesn't engage in the continuation of it's previous direction. Meaning that as soon as we get a higher high in a down direction (and vice verse), we have a reversal. The scalper, plots an arrow on the bar that's trading a higher high in a down trend (meaning the second bar after the potential reversal bar). You'll be getting the plot on the reversal bar, if the third bar closes above the second bar's high. In theory you'll get your signal on the close of the third bar, or the opening of the fourth.

Is that good/safe? In conjunction with the HR yes, it's good (have it under observation before you start using it though). You can also use it more aggressively by taking the entry on the opening of the third bar, that by waiting for the arrow to plot on the second bar. But remember, use it in conjunction with the HR, and learn what and how it is doing first.

/George

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 TraderJesse 
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from your post George

"It's called Scalper and it plots a signal after 3 higher closes or 3 lower closes. (I've just put it on my charts, and I'm still observing it, and it seems that it plots the high/low instead of the close). Any help will be appreciated in observing and developing it."

That's all I was trying to do was observe and give you some feedback, that it was not painting properly the all time. I'll try to explain a little better. The indicator basically quit painting bars after a little over an hour after adding the indicator to the CL 12-09 2 min chart. Then it painted one reversal bar an hour and a half after it had painted the last previous bar. The bar it painted had nothing to do with the current reversal area and several other bars should have ben painted in between. So during realtime streaming data, it is not painting all the bars it should. When I hit F5 to refresh the chart, bars that should have been painted realtime were then painted. See second chart. I had a SPY chart on 5 min that did the same. Roughly after an hour it quit painting reversal bars. Hopefully that is clearer than my first post, I believe understand how it is suppose to work, it's just that it didn't work properly on my charts Friday. I don't know if it's the indicator or my Ninja setup. I've read numerous times how one person has nothing but problems with something on Ninja and another person has no problems. For what it is worth.

Jeff




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from your post George

"It's called Scalper and it plots a signal after 3 higher closes or 3 lower closes. (I've just put it on my charts, and I'm still observing it, and it seems that it plots the high/low instead of the close). Any help will be appreciated in observing and developing it."

That's all I was trying to do was observe and give you some feedback, that it was not painting properly the all time. I'll try to explain a little better. The indicator basically quit painting bars after a little over an hour after adding the indicator to the CL 12-09 2 min chart. Then it painted one reversal bar an hour and a half after it had painted the last previous bar. The bar it painted had nothing to do with the current reversal area and several other bars should have ben painted in between. So during realtime streaming data, it is not painting all the bars it should. When I hit F5 to refresh the chart, bars that should have been painted realtime were then painted. See second chart. I had a SPY chart on 5 min that did the same. Roughly after an hour it quit painting reversal bars. Hopefully that is clearer than my first post, I believe understand how it is suppose to work, it's just that it didn't work properly on my charts Friday. I don't know if it's the indicator or my Ninja setup. I've read numerous times how one person has nothing but problems with something on Ninja and another person has no problems. For what it is worth.

Jeff





Jeff,


I'm sorry for the misunderstanding. I thought it painted the black bars as reversals, on your charts. My bad!

Anyway, I'm not experiencing what you're describing on my charts. It could be something with your NT. Try to reinstall the whole thing (do a backup first). And put in only the indiactors you use for now. I don't know if that helps, it's just a guess!
If I were you, I would have sent an email to the Ninja guys. In my experience they're very helpful.

/George

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George:

I re-attached my charts that were suppose to be with my last post. Not sure why or when they disappeared.

Jeff

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George:

I re-attached my charts that were suppose to be with my last post. Not sure why or when they disappeared.

Jeff


Jeff,

Let's do this instead. Let's record a CL 1 minute chart for say 10 minutes, starting 14,15 that's 4 minutes from now, and let's post it here in order to see the differences!

/George

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Here are two charts. The first one is 1 minute chart, but it doesn't plot that many signals. That's why I included a 20 seconds chart as well.





/George

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About 15 minutes worth


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It's not working properly on my NT setup. When I get time i'll reinstall.


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The all the different colors are killing me ! I'll will work with and try to figure it out later.




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 George 
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Ok, hope it works out well!

/George

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1,618 Projection

1,618 projection usually indicates exhaustive price action. Often, when price action exceeds the 1,618, it usually represents extreme price action that is difficult to sustain. The 1,618 can also be considered as overbought/oversold since the 1,618 represents price action that is too extreme. Therefore reversals that occur beyond this area will usually happen quickly. When the 1,618 projection within a PRZ has been tested, the determination of the trades execution is imminent.


Bullish 1,618

When a bullish 1,618 projection occurs we can often assume that we're facing an extreme sell-off. When price action is declining, the trend can often become over-extended. Then 1,618 projection point can identify profitable set-ups, since price action that reverses from these over-extended areas can frequently provide sizable reactions.




Bearish 1,618

This one is an important level because it is an excellent area to take profits or enter a short position. The same goes for this one, it represents an extreme price area. Often, when an established trend tests a significant 1,618 projection, it will encounter some degree of resistance.

Although price action does exceed the 1,618 area, it is important to understand that such action can be difficult to maintain. Also, if the area is exceeded, the price action should rally strongly through the area to ensure that a reversal will not occur. Therefore, it is critical to examine closely the area and be prepared to sell, regardless of the best prospects perceived.


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A small Summary

0,618
0,786
1,270
1,618


We started this journey with the ,618 retracement. It's one of the most significant Fibonacci numbers out there. We also included into this HR the 0,786 retracement level. This one appears when price action has gone past the ,618 retracement level and it indicates extreme price action. In case it fails, the price action continues in the direction of its previous move.

In order to find HR out there, we start the whole HR journey by measuring relations in price movements. We simply pick a movement and we apply the 0,618 retracement level in order to project the reversal area. In case the movement has passed beyond the 0,618 are, we look for the next level which is the 0,786 retracement level.

No rocket science here right? Just a simple observation of where the price action has started, ended and a retracement projection.

Next step is to measure the projection from beginning to the end. After that you put out the projection. If the retracement is 0,618 then the projection is of 1,618. If the projection is 0,786 then the projection is 1,27.

IF we put all this together we get the AB = CD pattern. By now we have alltogehter a relationship of three HR's. That gives the pattern a high probability.

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AB = CD


Before we studyied levels of retracement and projection. Now let's get to the patterns.
The most basic pattern is a the AB=CD. In this pattern, the A to B leg is the first price move. After a brief retracement from point B to point C, the pattern will complete the C to D leg, which is the same length as AB. Simply, after the AB and BC legs have been established, you project the AB length from point C.

Although the price action will not always be exactly equivalent, the AB=Cd legs usually will be close enough to determine the reversal point. Sometimes this pattern will be exact, however it's up to the trader if he/she wants to wait for the CD leg to be at least equal the AB leg. Although, it is not uncommon for the CD leg to slightly exceed the length of the AB leg, the most important concept is to study the area where these two price legs are closely equivalent.

The price legs should be generally symmetrical possessing a consistent slope. It is important to study the time duration of each leg. The AB and CD legs should be approximately the same length of time to complete. For example, if the AB leg is ten price bars, the CD leg should require the same length of time. Although this is an ideal situation, the time duration does not need to be exact. If the price legs are close, the pattern is still valid.

This pattern occurs frequently, and if you train your eye to notice these patterns, they will begin to jump out at you. It is important to look for two price legs that are distinct. Once you study several examples, you will be able to decipher AB=CD patterns easily.


Bullish AB=CD

In the bullish picture below the point A is the highest point and point D is the lowest. Each price leg should be distinct with a symmetrical slope down.



It is difficult to observe this pattern form on a price chart and believe that a buying opportunity exists. Once the CD leg breaks down past point B, it seems as if the price action is weak. Although it may be difficult to perceive, the pattern is actually indicating an excellent buying opportunity.


Bullish AB=CD Stop Loss


The stop loss in this pattern is somewhat subjective. Generally, the stop loss should be a point below the exact completion of the pattern.



If a reversal is going to occur, the price action usually will turn bullish in this area. So, it's important to study this area closely to determine the validity of the trade. Once the price action tests the area where the pattern completes, it "should" begin to rally. If the price action does not turn around, thee are some signs to be aware of that will invalidate the set-up. If the price action closes below the completion point or continues to decline after hitting the area, this would signal that the reversal probably would not occur.

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Ideal Bullish AB = CD


The ideal bullish AB = CD pattern will have two distinct declining price legs. The pattern begins at the point A with a sell-off to point B. After a retracement to either the 0,618 or 0,768 of the AB leg, the CD leg begins. The sell-off of the CD leg should complete either at the 1,27 or the 1,618 projection of the BC leg.



The completion of this pattern should have two harmonic calculations converging in a specific area. The most important number is the point where the CD leg equals the AB leg. Try to consider the completion of an exact AB=CD as a minimum requirement before entering a trade. Sometimes, the price action will reverse just shy of the exact completion point. In this situations, wait for a clear reversal sign in the price action before executing a trade. The BC projection, either 1,27 or 1,618, should converge very close to the completion point at D to complement the PRZ.

Although the AB= CD is usually distinct, the Fibonacci calculations can be very effective in determining the completion of the pattern. As a rule of thumb, examine the retracement of the AB leg to determine the BC leg projection. Specifically, if the BC leg retraces to the ,618 of AB, the completion of the pattern will occur at the 1,618. If the BC leg retraces to the 0,786 of AB, the pattern will complete near the 1,27 BC projection.

This pattern occurs frequently. Often the ideal pattern will bounce almost exactly off the harmonic numbers and provide a set-up that almost seems too good to be true.



Same rules applies to the the Bearish AB = CD, but in the opposite direction.

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 George 
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George:

Other than RSI I haven't been using indicators but I did download the Scapler and set parameters as you have shown. It doesn't seem to paint bars consistently. I followed it on a 2 minute CL and SPY chart. It painted a few bars but them just would put the indication arrow up and not paint bars. Although I did see the bar at 11:02 paint after the 11:48 bar closed. Refreshing the chart would then paint all the bars that should be painted, I think. So I not sure if it's working properly for me.

See attachments of CL bars not painting then refreshed CL. Black is the paint bar color. I added the indicator at 9:15-9:30ish on chart.

Also thanks for long write up, I got a lot out of it.

Jeff

Jeff, I was playing around with my charts and put the Candle Clear indicator on one of them. Do you happen by any chance to have that on?! Because in that case the same thing happens to my charts. The scalper doesn't plot. And that's because of the "Thick wick = True".
Se the picture:



/George

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Alternate Projections of the AB = CD Pattern

Although the AB=CD pattern is a great set-up when each leg equals the other exactly, there are many situations where alternative Fibonacci calculations are required to clearly define the PRZ. Although there might be a clear pattern developing, it is not uncommon for the AB=CD to be unequal. These alternate projections should merely complement an area that possesses other harmonic numbers.


1.27 or 1.618 AB = CD


When the equivalent AB=CD completion point is blown out, the 1,27 or 1,618 can be used to determine other potential reversal points. These alternate calculations are not difficult to calculate. Depending upon which number is used, multiply the AB leg by either 1,27 or 1,618 and project that distance from point C.


Alternate Bullish 1,27 or 1,618 AB=CD
(same rules applies to the alternate bearish ab=cd but in the opposite direction)



The bullish alternate projection is useful to gauge other potential reversal areas for price moves that exhibit a clear AB=CD pattern. The CD leg usually will experience an extended decline that reverses off the 1,27 or the 1,618 of the AB leg.

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George View Post
Jeff, I was playing around with my charts and put the Candle Clear indicator on one of them. Do you happen by any chance to have that on?! Because in that case the same thing happens to my charts. The scalper doesn't plot. And that's because of the "Thick wick = True".
Se the picture:


/George

George:

No never had that indicator, only the RSI, Volume, and pivots on stocks. I'll try a chart with nothing but the Scalper Indicator and see if that makes a difference.

Jeff

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 Eric j 
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The all the different colors are killing me ! I'll will work with and try to figure it out later.




3 bar reversal paintbar - that is probably the only indicator you will ever need to make money trading futures.

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3 bar reversal paintbar - that is probably the only indicator you will ever need to make money trading futures.

Eric,

Would you mind explaining how to use the 3brp.

Thx!

/George

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Eric,

Would you mind explaining how to use the 3brp.

Thx!

/George

Sure George , first forget using it to spot 3 bar reversals because it doesnt work in real time . Sorry about that but it is not an issue to me because all you need it for is spotting bars that either close higher than the prior bar (CHPH) or close lower than the prior bar (CLPL) .

Second , configure it so the CHPH and CLPL bars are brighter than the bars that only close lower or higher than the last close . In other words what is significant is the bar closing above or below the last bar showing conviction of price movement .

Thirdly , you need to know where price is and where it has been and where it is likely to reverse . Not necesarily reverse the trend but signal that a retracement is through and price is ready to continue in its prior direction ( the bar closes BRIGHTER ). Maybe a retracement to 50% of the last leg then a doji then a brighter bar favoring the trend .

Thats one way to use it , there are many other ways but its best to learn on your own - give a man a fish / teach him to fish so to say .

Some of this is what is/was called AHG method and if you search on ET for aneks old thread discussing price action trading it makes for fascinating and gripping reading . I joined the forum for AHG but sadly it never materialized into anything useful .

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Heres the thread at ET , very interesting and informative . Most of what is at ET is harsh criticism and harassment and this is one of the few useful resources from there .

Thread: AHG - Profitable Strategy for Struggling Traders

After that , the 3 bar reversal paintbar is just a tool for trading and probably the only indicator you need . You cant build a house with just a hammer . Its not the one thing that will give you an edge but its a simple device and the simple stuff is usually the most effective .

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 websouth 
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While reading this thread and playing the at home game. I have been using the 3BR and a dynamic fib indi .... You might like the combo....


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 wh 
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KISS




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 wh 
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more more more

here a nice thread about fibonacci retracement. i like it so much ....

Hourly Fibonacci Method (Day Trading) @ Forex Factory

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 George 
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A very beautiful AB = CD in CL (6765 ticks).



/George

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 George 
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And here we have the projection!!!!
This is truly Harmonic, musical, wonderful!!!!



/George

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Kjaved,

Can't really see your Gartley, are reffering to the big swing from 11/12, til now? Because if that's it, then you don't have a Gartley there. It might be a Buterfly instead (but you have to measure the relationships in order to get it right). But no Gartley because (in case you're measuring point X from 11/12 10,45 then your CD swing has passed above the X, which makes the Gartely invalid.

/George

/George

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Yes you are right, but as last leg prolonged, so may be it will be converted to CRb, still not crab,. It is not butterfly, as retracement is just 61.8 % that is reqirement of Gartly and Crab. Further it is Bat as retracement more than 50%. If retracement was 78.6 then it could be Butterfly, Now as it prologed more due to TVGR, so more chances that it could be converted to Crab. I just say Ready to be, There are so many options in gartly and Crab. Now I am looking it as Crab, as it prologed, so next X will be 1.618 and B will be 224. Now Projected D point may be 608.6 as on this price X will be 161.8 and B projection will be 224. Lets see what happen.

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