There is an overwhelming amount of traders out there who are using harmonic patterns in the completely wrong way, I would like to address these issues individually to help all of the new traders out there who may not be aware of these mistakes.
1. Using the wrong ratios for each pattern.
The most common issue with harmonic patterns, using the wrong ratios. It's scary, search the pattern you're trading and I guarantee you end up with 5 different sets of ratios, and you're left asking yourself which ones are correct?
2. Contradicting signals on multiple timeframes, going against the bigger picture.
Harmonic patterns, which develop on different timeframes, may show conflicting signals. You may see a bullish and bearish pattern on two immediate timeframes, this may create confusion for a novice trader.
3. Misplacing stop loss levels, therefore increasing the likeliness of being stomped out.
Common stop-loss rules are prone to easy manipulation by major players and can become a major drawback, this is why I have defined my own rules for stop loss and take profit targets.
4. Wanting the market to see your pattern.
In your head, you want the market to see your pattern and you force it onto your chart. You try to make it fit the market rather than letting the market fit the pattern. Please understand, the market does not care how you think or feel, when you show up you need to bring your A game.
5. Not going with key support and resistance levels.
Most novice harmonic traders assume that if they find a valid pattern it will automatically reverse once it reaches the potential reversal zone, however nothing else is indicating a reversal at that level. Always go with the key level in the market, if your D point aligns with a weekly level of support or resistance this provides strong reasoning for a reversal.
I am available via private message for any questions you may have.
Traders fail as harmnic traders because they mix up harmnic approach with advanced patterns approach. Although, the two methods look like "two connected triangles" on the chart they are very different.
On the go:
1) Harmonic traders zoom the chart OUT to the extend the candle closes aren't seen anymore and look at major highs and lows. Typical XA impulse contains FIVE OR MORE market swings. Advances pattern traders zoom the chart IN to the extend the candle closes are seen and look at the market swings. The swing identification algorythm of an advanced pattern trader inculdes HHHC and LLLC principle. XA is typically only ONE swing
2) Harmonic pattern has a mandatory ab=cd (harmonic) element. Without this harmonic movement inside of the pattern there's no harmonic pattern. On the contrary, advanced patterns rely only on fibonacci ratios only.
3) Harmonic patterns have a "precise" ratio for each point. It is very subjective what to be considered a valid ratio. Harmonic traders consider a pattern to be valid if it doesn't hit the ratio by few pips or it exceeds the ratio by few pips. Advanced patterns have fibonacci zones. If price fails to hit the min ratio raquirement or it exceed the maximum ratio requirement then the pattern is ivalidated.
3) Harmonic traders define a potential reversal zone and watch the Termination Bar+RSI OB/OS/Divergence within this zone. Advance pattern traders enter agressively with limit orders.
4) If the Termination Bar crosses the PRZ and closes beyond it then the harmonic pattern is invalidated. Advanced patterns don't have this invalidation rule but if the CD leg was completed 90% and the reaction went to first targets then the pattern is considered to be invalid. In most cases the advance pattern is considered invalid if price goes past X.
5) Hamonic traders place stops just above the Termination Bar. Advanced pattern traders ALWAYS place stops above the X-point.
In most cases, traders define the pattern as harmonic but they trade it agressively as advance pattern. This is the most common mistake.
The only reason why harmonic traders fail is that they didn't invest anything in proper education. If one doesn't have money to purchase the official trading courses of Scott Carney or Tradeempowered then he must invest his TIME instead. He should gather the bits of information scattered throughout the internet, attend ALL free harmonic pattern or advanced pattern webinars, read all related books and ,the most important, do the market research (backtesting). The second method will take him years but one needs to invest something: either his MONEY or TIME. The problem is: Novice traders doesn't treat trading as business. Business rule #1 says: to get a return you need to invest.
If you found yourself as the one who never knew this information before then you should confess to yourself that you didn't invest enough to become a successful hamonic or advanced pattern trader...
LewisGlasgow
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@Alexander_Nikitin, wow!!! Thank you for sharing your view on the topic, this was more in-depth than the original post.
trungle83
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@Alexander_Nikitin, Great post on this topic. Personally have given up on most harmonic/advance patterns especially when seeing so many times 'expert' fail.
I personally prefer to use these patterns as a confluence rather than an idea but this is just personal preference.
Once again, great post.. i enjoyed it.
Alexander_Nikitin
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@trungle83, When you see "experts" what actually you see? The ideas posted here don't go the expected way? Let's put it this way: plenty of pro traders have the trading window when they found patterns working the best. Actually, they trade only within those few hours a day. Personally, when my trading is over I go and post some ideas here to demostrate my approach. Do I post what I trade? Mostly not, because I post outside of my trading time. And visa vera, do I trade what I post? Mostly not as well because of my trading hours. How can one judge based on posts?
Another issue. Why didn't you invest your time into backtesting of harmonic/advanced patterns? You made your opinion about patterns based on those "experts". What if they aren't experts at all? Only the Market can tell you if the pattern is profitable or not.
Just my views. They aren't necessarily true...
Market_Gadfly
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Great work! Same on your recently posted EURUSD trade! I will continue to look forward to seeing your work :)
LewisGlasgow
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@Market_Gadfly, thank you very much indeed! I've got a lot more on the way :)
On the go:
1) Harmonic traders zoom the chart OUT to the extend the candle closes aren't seen anymore and look at major highs and lows. Typical XA impulse contains FIVE OR MORE market swings. Advances pattern traders zoom the chart IN to the extend the candle closes are seen and look at the market swings. The swing identification algorythm of an advanced pattern trader inculdes HHHC and LLLC principle. XA is typically only ONE swing
2) Harmonic pattern has a mandatory ab=cd (harmonic) element. Without this harmonic movement inside of the pattern there's no harmonic pattern. On the contrary, advanced patterns rely only on fibonacci ratios only.
3) Harmonic patterns have a "precise" ratio for each point. It is very subjective what to be considered a valid ratio. Harmonic traders consider a pattern to be valid if it doesn't hit the ratio by few pips or it exceeds the ratio by few pips. Advanced patterns have fibonacci zones. If price fails to hit the min ratio raquirement or it exceed the maximum ratio requirement then the pattern is ivalidated.
3) Harmonic traders define a potential reversal zone and watch the Termination Bar+RSI OB/OS/Divergence within this zone. Advance pattern traders enter agressively with limit orders.
4) If the Termination Bar crosses the PRZ and closes beyond it then the harmonic pattern is invalidated. Advanced patterns don't have this invalidation rule but if the CD leg was completed 90% and the reaction went to first targets then the pattern is considered to be invalid. In most cases the advance pattern is considered invalid if price goes past X.
5) Hamonic traders place stops just above the Termination Bar. Advanced pattern traders ALWAYS place stops above the X-point.
In most cases, traders define the pattern as harmonic but they trade it agressively as advance pattern. This is the most common mistake.
The only reason why harmonic traders fail is that they didn't invest anything in proper education. If one doesn't have money to purchase the official trading courses of Scott Carney or Tradeempowered then he must invest his TIME instead. He should gather the bits of information scattered throughout the internet, attend ALL free harmonic pattern or advanced pattern webinars, read all related books and ,the most important, do the market research (backtesting). The second method will take him years but one needs to invest something: either his MONEY or TIME. The problem is: Novice traders doesn't treat trading as business. Business rule #1 says: to get a return you need to invest.
If you found yourself as the one who never knew this information before then you should confess to yourself that you didn't invest enough to become a successful hamonic or advanced pattern trader...