fbpx

How to use Harmonic trading patterns?

0 Comments

Advanced Trading Patterns and Harmonic Trading are the most trending trading strategies in recent times.It has the advantages of high accuracy and strict trade management rules that give traders the extra edge with better trading results and simple mechanism to set stop loss and target levels (see the MarketZone video example at the end of this article).

For technical traders, harmonic trading has nothing but advantages.

  • It has the advantage of high accuracy
  • It has a strict trade management
  • simple mechanism to set stop loss and target levels (see the MarketZone video example at the end of this article).

Basically, Harmonic Trading rules provide traders with a better trading edge and better results.

What is a harmonic move? 

Studies have shown that markets (stocks, FOREX, commodities) prices tend to move in constant distances. These constant distances sometimes refer to as “The Market Pulse” or “Rythm”.

If you look for example at IBM’s daily chart (below) you can clearly see how the stock has certain price movements which repeat again and again.

harmonic moves

harmonic moves in $IBM

These moves are called “Harmonic moves” and usually they occur in the same size, or as a move which is a result of multiplying the original size in one of the Fibonacci’s ratios. For example, you can have a Harmonic daily move of 20 pips in the EURUSD and if you will examine the charts carefully you will see smaller harmonics of approx 12 pips which is 20 pips x 0.618 Fib ratio.

Try and recognize harmonic moves yourself. Open a chart and try to recognize moves which are repeating in the same size. If you found any, try to look for those smaller moves and see which Fib ratio created the size of these smaller moves. If you will practice it enough, you will see these harmonics everywhere, on any time frame.

What does it mean Harmonic trading? 

Fibonacci studies showed that certain relations between price waves, harmonic moves, and Fibonacci’s ratios can create a pattern that can predict high probability reversal points in markets equities (Stocks, Currency pairs, Commodities etc). In time, more and more patterns were discovered and technical analysis made for these patterns created a set of trading rules for each different pattern.

The most basic Harmonic pattern is the AB=CD pattern which has two identical waves in the same direction with one correction wave between them. In the GEVO example (below) you can see the how the identical distance move of leg CD completed the pattern and created the reversal point (zone).

As traders and technical analysts recognized the technical edge in these patterns, more and more patterns were discovered – Gartley, Bat, Butterfly, Crab and more…

IBM harmonics

Harmonic pattern on IBM

The MarketZone and harmonic trading

In my trading, and in the Market Zone’s content, I use these harmonic trading patterns to find trading opportunities in the equities and FX markets.

The Price Zone’s trading system combines these trading patterns with other technical methods (like Price Action, Classic patterns and Fibonacci trading for example) to recognize and find optimal trading zones with the highest trading edge.

Harmonic patterns are key part of the MarketZone’s strategy and any setup that includes such patterns is considered to be significantly stronger than setups with out harmonic patterns.

You can see how I use harmonics and other trading methods each day by signing up to my free weekly newsletters – The Weekly Markets Analysis

Want to learn more? Try these articles

 


Forgot something?

Don't have time right now? Don't worry. Before you leave, make sure you sign up to our newsletter to get the most important market updates straight to your inbox! Subscribe for free now

Suffer from emotional trading?

Use this Free Trading Plan template and leave your emotions out!