Harmonic Trading – How to recognize and build a PRZ
PRZ (Potential Reversal Zone) is the price zone in which harmonic patterns traders, are looking for reversal signals (fatigue\exhaustion of trends).
The PRZ is actually “The Money Zone” – This is the execution zone that will either turn the trade plan and the pattern to a profitable one or to a failed one.
I’ve prepared a Youtube video (see below) in which I demonstrate how to recognize a PRZ and how to draw it on your charts. I’m using the basic AB=CD pattern for the use of this demonstration and later in the second half of the video I’m showing a real trading scenario that I currently have for $GPRO so you’ll be able to see both theory and how the PRZ is being built on real stock chart:
The basic principle of an AB=CD pattern’s PRZ are:
- Equal distant legs (AB leg equal CD leg) – The PRZ is found at the end of the CD move.
- Fibonacci extension levels create Fib confluence zone
Combination of the two price zones creates a PRZ which is wide enough to let the price trade inside and react to the potential change in leading forces (bulls vs. bears).