What Is Harmonic Trading?
Harmonic Trading is a form of stock chart analysis based on the idea that specific price and time relationships occur repetitively in stock price patterns. Certain relationships often precede large moves in the price of a stock (or market in general). The term "harmonic" suggests that distinct phases of price movement over time are related by some factor to past price movements and future price movements. Therefore, the identification of harmonic patterns offers predictive information on future price movements over time.
Click on the Harmonic Trading Example Chart to Enlarge
In this article I will help you learn to identify ideal harmonic patterns for harmonic trading techniques.Harmonic trading is typically coupled with Fibonacci ratio analysis in order to identify potential price reversal zones.
The bullish version of what i consider to be an ideal harmonic pattern is for a price advance followed by an ABC correction where point A retraces to 61.8% of the preceding price advance (labeled 0-X in the example chart of ANF), point B retraces to 61.8-78.6% of wave A, and wave C ends at a 78.6% retracement of the 0-X move.
In the case of this chart of ANF, the time of the ABC correction takes 1.263 times as long as the preceding advance which is approximately 1.272 which equals 78.6/61.8 which are the A and C retracement points. There will often be a harmonic relationship in the time of the ABC relative to the 0-X move.
Stop losses on trades would be placed just below point 0 for the bullish pattern, and above point 0 for the bearish pattern. The minimum target for the move would be the high at point "X" for the bullish pattern. I prefer to employ a proprietary trailing stop technique in order to capture as much of the move as possible.
In the case of this chart of ANF, the time of the ABC correction takes 1.263 times as long as the preceding advance which is approximately 1.272 which equals 78.6/61.8 which are the A and C retracement points. There will often be a harmonic relationship in the time of the ABC relative to the 0-X move.
Stop losses on trades would be placed just below point 0 for the bullish pattern, and above point 0 for the bearish pattern. The minimum target for the move would be the high at point "X" for the bullish pattern. I prefer to employ a proprietary trailing stop technique in order to capture as much of the move as possible.
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