As you
may have guessed, profiting off Harmonic Price Patterns is all about being able
to spot those "perfect" patterns and buying or selling on their
completion.
There are three basic steps in spotting Harmonic Price Patterns:
·
Step 1: Locate a potential Harmonic Price Pattern
·
Step 2: Measure the potential Harmonic Price Pattern
·
Step 3: Buy or sell on the completion of the Harmonic Price
Pattern
By following these three basic steps, you can
find high probability setups that will help you grab those oh-so-lovely pips.
Let's see
this process in action!
Step 1: Locate a potential Harmonic Price
Pattern
Oh wow, that looks like a potential Harmonic Price Pattern! At this point in time, we're not exactly sure what kind of pattern that is. It LOOKS like a three-drive, but it could be a Bat or a Crab...
Heck, it
could even be a Moose! In any case, let's label those reversal points.
Step 2: Measure the potential Harmonic Price
Pattern
Using the
Fibonacci tool, a pen, and a piece of paper, let us list down our observations.
1. Move BC
is .618 retracement of move AB.
2. Move CD
is 1.272 extension of move BC.
3. The
length of AB is roughly equal to the length of CD.
This
pattern qualifies for a bullish ABCD pattern, which is a strong buy signal.
Step 3: Buy or sell on the completion of the Harmonic Price Pattern
Once the pattern is complete, all you have to do is respond appropriately with a buy or sell order.
In this
case, you should buy at point D, which is the 1.272 Fibonacci extension of move
CB, and put your stop loss a couple of pips below your entry price.
Is it
really that easy?
Not
exactly.
The
problem with harmonic price patterns is that they are so perfect that they are
so difficult to spot, kind of like a diamond in the rough.
Check out this excellent forum thread discussing Gartley setups.
More than
knowing the steps, you need to have hawk-like eyes to spot potential harmonic
price patterns and a lot of patience to avoid jumping the gun and entering
before the pattern is completed.
