30 Pips A day Keeps the your money at bay

Trading Discussion
4044

Here is a paragraph from Scott Carney’s ‘Harmonic Trading Volume One’:

It is important to note that the initial point (X) utilized an “intermediate point” to begin the pattern. The intermediate point, although not the clear low from the prior’s day action, was defined well enough to establish the appropriate alignment of Fibonacci numbers in the structure. This structure illustrates the importance of the relative alignment of ratios to define a pattern. The formation of various patterns do not have to initiate from an absolute low or high. Although XA legs that are well defined typically originate from an extreme price level, the symmetry and validity of a particular pattern are more dependent upon the segments that comprise each structure. In this example of the ES, both the XA and BC legs were distinct and effectively outlined the pattern’s completion, despite originating from an intermediate support point from the prior day.

I am not knocking TMB’s statement that the X point should be a price extreme, I merely wish to show that it’s not the only valid point. If you wish to use only extreme price points for your X placement, I can’t knock you for that. After all, that’s what TMB does and he certainly knows his stuff and is making excellent trades. However, I feel you may be losing out on several more trading opportunities by limiting your X placement in this way.

Anyone is entitled to take an established trading style or system and alter it in any way for their own purpose. TMB has not claimed to be trading a Scott Carney style or system, merely a harmonic one, so there is absolutely nothing wrong with his techniques.

Among many other things, Scott Carney is the one who introduced the 0.886 fib level to the trading world, so if you see this being used or mentioned by any other website or trading system, know that it has been ‘borrowed’, as have a lot of other harmonic ‘traits’.

I would highly recommend Scott’s three books. They will give you a thorough understanding of harmonic trading and a solid foundation from which to build your own trading system. Then I suggest following TMB to see how harmonic trading can be a solid and profitable style of trading. Even though I have read these books, I am still keen to follow this thread and TMB, as there’s nothing like seeing the art of successful harmonic trading in progress. And this I feel TMB accomplishes with style.

4045

TMB - Your pattern is Invalid based on your own rules. Point B did not reach atleast .382 of XA. Im getting more and more confused on how you draw your patterns. Any help ?

4046

[QUOTE=Dan89;215120]TMB - Your pattern is Invalid based on your own rules. Point B did not reach atleast .382 of XA. Im getting more and more confused on how you draw your patterns. Any help ?

Dan, I believe the AB leg should retrace between .236 - 1.000 of the XA and it is the BC leg that should retrace between .382 - 1.000 of AB…? Im not 100%, hence the question mark but those are the rules i go by.

4047

TMoneyBags Could you please clarify this for us ?

4048

Here’s one i’m watching on the USDCAD for the start of the week… There are two close convergences but I’m going with the lower one given the line of resistance there.

4049

I agree with TMB!

If we think about the market and what we’re really trading, and ask why these and other patterns turn up, and why they repeat themselves…

… there’s no reason why they shouldn’t work on any market or any timeframe.

Of course, just because they show up does not mean you should trade them. There are other factors to take into account as TMB has mentioned.

4050

My rules state that point C of the BC leg should be >= .382. In other words the fib measurement of A to B must hit the .382 or greater. To the best of my recollection, I have not stated that the .382 of an XA measurement indicated validity of a pattern. I measure the valleys of price, the peeks and extremes of price as my X and as a result a significant amount of the B retracements of XA don’t even make it to the .382. Even though some texts may indicate that a retracement of the .382/.236 is required to validate the pattern, past experience and to simply put it “hands on trading” dictates different.

All in all, my technique as stated by other members here is a mixture of different harmonic trading styles with my own “twist” to it. For the record, XA hits the .236 of its fib and to me this simply indicates that price is respecting the fib levels and the pair is acting symmetrically with each of its points. This should clarify some of your questions and if it does not, I recommend that you read through the beginning of the thread again and go over my trades and those of whom I’ve helped with their patterns in the past.

4051

Hey Pleiadian,

Nice analysis and discussion.

Just an aside - What charting package gives you the “harmonic pattern reference” pic you attached? Is that eSignal?? Looks a lot user-friendly than MT4 with Fib select boxes.

As for your 2 charts:
Is there any reason for you not to trade both?? :wink: Just a thought…

Both options look viable to me - both had D points with good confluence at Fib levels and/or prior S/R.

4052

I feel the same way - generally, methods and systems can and should be adapted to fit your trading personality. Particularly as it relates to money management.

I can definitely say I trade harmonics using a mix of various styles adapted to fit me. :wink:

4053

Hi there Inspira,

I use Marketscope from FXCM, and I simply draw the patterns myself using the trendline tool. As for the fib levels, in Marketscope it’s easy to dictate which levels to show on the chart and which ones not to, along with the trendline (dotted dashed line on my chart).

As for which, if any, of the two patterns to trade, I’m inclined to go along with your suggestion. You could always trade the lower D point first, and if that failed, the higher D point would almost server as back-up.
Thanks for your response buddy.

4054

Chart set-up:

EUR / AUD 4hour

Chart One: Scott Carney style.
As with all Scott Carney patterns, the B point is a defining factor. Placing the B point at this level (chart 1), it retraces 0.618 of XA. This qualifies it as a possible Gartley or Crab. To qualify as a Butterfly, the B point must retrace 0.786 of XA.

Once the C point establishes itself, we can then project the D point… There is nice convergence at the 1.00 XA (yellow fib) with the 1.272 CD projection (blue fib). However, Scott also uses a BC projection (purple fib), and while the 2.240 BC projection converges nicely with the other two levels, the BC projection of a Gartley must not exceed the 1.618 level. Therefore this would rule out a Gartley as a possibility according to Scott. (Nevertheless, trading this level would have still netted 30 pips.)

That only leaves us with the Crab.
The D point of the Crab must converge somewhere in the vicinity of the 1.618 projection of XA to qualify, while the BC projection can range from a 2.240 to a 3.618 measurement. In a Crab the AB=CD projection is normally a 1.272 or a 1.618, but it can be more extreme than this.
In the PRZ box I have marked, we have the 1.618 of XA, the 3.618 of BC, and the 2.240 of the AB=CD. However, the AB=CD number in the Crab is the least important of the three, and only goes to complement the PRZ. The critical number is the XA projection, with a minimum reguirement of the BC projection being hit for the pattern to be considered complete.
As you can see, this is a fairly wide PRZ ( ~40 pips) when compared to TMB’s strategy, yet it is still a very valid one according to Scott.

Chart 2:
Taking the first swing after the A point as your B point, we end up with chart 2. There are three good convergence areas here as shown by the coloured circles. But let’s take a closer look at these levels.

Orange level:
While the orange level looks to be a perfect Gartley and an excellent trade entry opportunity, the BC projection at this level is a measurement of 2.00, which negates the pattern as a Gartley (as BC cannot exceed 1.618 in a Gartley). And as you can see, price ran straight through this level without looking.

Green level:
The 1.272 of XA and the 2.00 of AB=CD converge at this level. When dealing with a PRZ, the most crital number in the PRZ in all patterns is the XA projection. So looking at a 1.272 projection in the PRZ would suggest a potential Butterfly, as this is the only pattern that permits a 1.272 XA projection. But we can tell that this is not a Butterfly simply by looking at the B point. This B point has only retraced 0.50 of the XA, and a Butterfly must retrace 0.786 of XA. So this negates a Butterfly.

Yellow level:
Taking the B point into consideration (0.50 of XA), the only possibility left at a 1.618 XA projection is the Crab. The Crab accommodates an extended BC projection and an extended AB=CD projection. The BC projection in this case would have to be very extended one in order to hit this yellow level, and while the AB=CD projection at this level is a 2.618, bare in mind that in the Crab pattern the AB=CD is merely a complementary number in the PRZ, and not a primary number of the Crab’s PRZ.

Having compared the two charts, the 1.618 XA looks favourable in both.
I’ll be watching this currency pair to see how it plays out.

Any comments or feedback is most welcome :slight_smile:

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Chart2.jpg700×517 36.2 KB

4055

If the upper trend line holds and price continues to fall, we could be looking at a bullish Gartley at ~1.5420, with a lower PRZ limit of ~1.5405. Still very early days though.

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4056

No probs my friend.

I do the same thing - if a pattern reforms (especially as a crab) I won’t hesitate to re-enter. I love crabs!! :smiley: The RRR is outstanding compared to the other patterns.

<<< You’ve written in the next post - In a Crab the AB=CD projection is normally a 1.272 or a 1.618… I think I know what you mean, but technically I wouldn’t call it an AB=CD, just a BC extension. Does Carney say that in his books? >>>

4057

He does indeed. The BC projection is a completely separate measurement.
By measuring the AB leg from the B point to the A point, then moving the fibs across to the C point, you get the CD projection, or as Scott calls it, the AB=CD projection.
Measuring the BC leg from the B point to the C point gives you the BC projections. The BC leg is not extended at all. Extended compared to what? The BC projection shows possible retracement levels of the BC leg.
It is the CD leg that can be extended compared to the AB leg.

All of the patterns (Bat, Crab etc) possess an AB=CD pattern of some description. The AB=CD pattern suggests the CD leg should equal the AB leg in length. So if the AB leg covered 45 pips, the CD leg should cover 45 pips. But if the CD leg covers more that 45 pips, then it is said to have extended. When this happens, CD no longer equals AB (in length) and therefore is otherwise called an Alternate AB=CD, of which the 1.272 and 1.618 are most common.

Hopes this helps.

4058

I also trade on the basis of some of Carney’s work, scaling in/out of trades in the PRZ (potential reversal zone)

Nice analysis again. I much prefer chart 1 in your example - primary reason being generally all points (B, C, D) should be the deepest retracements. (I vary the X point)

In chart 2, initially my B point would be where you have yours. With subsequent price action of the swing high and lower low (in the BC leg), the B point would change to where it is in chart 1. And the C point would be the same.

I’ve never projected any points using AB=CD extensions, and not sure why you would so I can’t comment on that. I do note/trade AB=CD patterns though but not extensions of them.

Ahh I see!! You’ve really done your homework - thanks for your comments to my previous post - I’ll have to do some snooping around. Don’t think i’ll incorporate it, but we’ll see… :wink:

I’ve said it before, I think it’s great that a few of us have a few personal variations and nuances to this trading method. Just goes to show there’s no 1 right way.

4059

Hi Inspira,

Most of the patterns contain an extended AB=CD pattern, so if you trade patterns like the Crab or Butterfly, then you are already trading AB=CD projections. Maybe I’m confusing the issue a little by calling it an AB=CD projection (it’s full name), as it’s more commonly abbreviated and referred to as a CD projection. My apologies if this is the case :slight_smile:

How true. There’s no right or wrong way, only the way that works for you :slight_smile:
Lol, you could argue that’s it’s a wrong way if it’s not profitable, but then my retort would be, ‘if it’s not profitable, then it’s not working for you’ :slight_smile:

4060

AUD/USD on the hourly… rough convergence supported by the line of resistance shown. Market is trending pretty strong so I’m going to be slightly hesitant to take this

4062

This pattern did complete and afforded 30 pips… i’m now watching the GBP/USD that was put forth by The Pleiadian earlier

4063

CD >= AB (100%-261% CD Range) When referring to Gartley/Butterfly patterns (A crab pattern is a specific name for a type of butterfly pattern, nothing to get confused about either)… Think of Butterfly/Gartley patterns as advanced ABCD patterns where AB=CD patterns give you a 40% chance of reaching a .618 retracement and adding an X A point simply raises that chance to and avg of 70%.

4064

Thanks TMB, this is very insightful as always!!

Here’s a pattern to ponder: GBPJPY 1 hour bullish pattern.

Technically, it’s not a harmonic although it does contain Fib ratios with good confluence.

Would or does anyone else trade these?? (I do and I know others who trade similar patterns with success).

Thanks in advance for any feedback. :wink:

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