Trials and Tribulations

It has been a few weeks since my last blog because I have been going through what you might call a bit of a crossroads in my trading. Add to that a big dollop of self-doubt and bingo it’s time to take a step back, take a deep breath and pray!! 

For a while now I have been struggling with one aspect of Harmonic Trading, and unfortunately it’s the single most important aspect of the system; namely trading the PRZ (not good eh!!). The problem for me lies in finding “the reversal candle” that is going to give me my entry signal. In  my limited experience I have found that I always seem to be in the wrong place at the right time. I find also that the whole experience of checking the different time frames looking for the “magic” candle, and the RSI to back it up is both overwhelming and frustrating, added to which it has not helped with my self-confidence and ultimately I keep missing great grades!

I am not for one second knocking the method because it’s genius and it definitely works but I guess like all things in life one size does not fit all and at the current time with my level of experience and success it is not working for me. Fortunately I have come across a bunch of other traders and their teacher who is applying the general principles of Harmonics as discovered and outlined by Scott. He has adapted them in a way that I find suits my personality and one that I am feeling comfortable with in order to be able to execute my trades in a consistent and less stressful manner.

 There are three key principles to this method of trading the patterns and they still remain true to Scott’s pattern recognition and ratio alignment. One looks for the patterns to line up with support and resistance so that you can place a sensible stop in an area that you can be comfortable which means that you don’t need to try to “trade the PRZ”. The risk reward is another crucial element, one that I know Scott rigorously applies, but I have been so busy running around like a headless chicken that it has slipped down my list of priorities. Finally you need to check the structure of the pattern which needs to have at least 30 bars (this relates to the Central Limit Theorem regarding statistical analysis and normal distribution curves…. don’t ask me, ask Scott… no clue). Obviously this is just a very brief synopsis of it and there is a lot more to it, and whilst I feel that I can more easily replicate this method of trading the PRZ because it is more mechanical in its approach, it isn’t a short-cut and it still requires constant study and self-discipline.

  I hope to share my experiences of it through my trades, but for now suffice to say I am enjoying myself again…Hallelujah!! So thank you HRH Scott Carney (His Royal Harmonics) and thank you to “The Duke” who showed up at just the right time…

Harmonic Continuation Patterns

This week has not been very fruitful in terms of trading the re-tests of “Big” Harmonic Reversal Patterns on the currency pairs that I am currently watching.However every cloud has a silver lining, and I took advantage of the temporary lull to concentrate on studying and trading Harmonic Continuation Patterns.

 There was certainly an abundance of those and I have to admit that they are very nice to trade. Added to which, I cannot begin to count the number of times that I have heard the phrase “the trend is your friend” or words similar to that effect, and it has to be said that for me at least, there is a psychological difference between trading in the direction of the trend and trading reversals (which is why I am sticking to the re-tests on reversal patterns!).

 For the purpose of today’s blog I am going to discuss 2 trades on the JPY; both produced nice points but I screwed the first one up and I will tell you why, and what I learnt from it!

 The following chart shows a 15 minute Bullish Butterfly:

 

When I entered the market on completion of the above pattern I was very conscious of the fact that a valid Butterfly pattern should react pretty much immediately after testing the numbers in the PRZ; and this one wasn’t doing that. I started to get fidgety and as a result I started to look for more evidence as to why this trade wasn’t valid .I pulled up the Fib Time Ratios which indicated that in addition my pattern was completing at the 1.618, well over the ideal 1. So what did I do? I jumped out with a small loss, only to watch the market hang around for short while before rocketing up, well it would do wouldn’t it!

 

 So now it’s time for reflection and to go over the chart to see what I might have missed or overlooked. Guess what, I’d overlooked the RSI yet again and it had given an oversold reading in the PRZ which would have helped to add weight to the validity of the pattern. I also came to the conclusion (I hasten to add this is only my interpretation)  that maybe one can be less rigid on the specific characteristics of the Butterfly and use of the Fib time ratio when trading what is basically a consolidation within the direction of the overall trend as opposed to a trend reversal trade.  From now on, when trading Harmonic continuation patterns I am going to stick to focusing on the numbers in the PRZ, (in order of their specific pattern related importance) allow for a little overspill, look for the stabilisation and last but definitely not least I will not forget the RSI!.

 I had an opportunity to put this into practice on the following Bullish Bat pattern shown here on both the 15 and 60 min time frames:

 

Let’s see what gems the market has to offer next week…..

Butterflies, Bats and Crabs

Let’s start with the EuroCHF. Last week I marked up a chart looking for either a Bearish Butterfly or a Bearish Crab, and was waiting to see if it would be supported by the HA software; it did not materialise. The software did however throw up a smaller Crab pattern within the confines of “my larger pattern”, and as is more often than not the case, it was possible to capture some points on the reactive moves before the pattern was well and truly violated.

 

What my “non pattern” did highlight however, was my laziness. If I mark something up myself I should then follow through by manually working out all  the potential ratio alignments  before doing an HA scan. This way I will get a greater understanding of each pattern, its individual requirements and a better feel on how to trade them.

I’d also posted a chart of a 60min Bullish Bat pattern on the CAD, and as shown by the following charts it experienced 2 tests of the PRZ before rolling over and violating the pattern. I followed my rules and took the trade. I employed a very tight trend-line to capture a few points, something that I always try to do in order to limit my exposure, keep my losses as tight as possible and help me relax!

 

 

The GBP did not disappoint yet again this week. I traded the retest of a 60min Bullish Bat pattern.

 

Whilst I was busy with the GBP, the NZD produced a lovely example of a continuation pattern as shown by the 60min Bullish Bat in the following charts.

I spent the week trying to take advantage of the numerous trading opportunities available to me through the HT system, with the result being that due to my current level of experience I spent the week running around like a headless chicken with my attention far too scattered. So I stopped took a deep breath, realised that I was in danger of becoming a jack of all trades and master of none and did a complete U-turn. I am now back focusing my attention on trading just the re-tests. I appreciate that as a result of doing this I will miss out on lots of trading opportunities but I am willing to live with that…….for now……

Week in review

Sorry that the charts are not aligned correctly to the relevant text. I have been at it for hours but there appears to be a bug in the software.

 

Well, the 60min GBP Bat Pattern really did yield a home run on the 3^rd test and whilst I’m in danger of flogging this one to death, after it was all done and dusted I happened to notice this smaller 60min Bullish Crab that complimented and added weight to the validity of the 3^rd test of the PRZ.

 

As I mentioned in my last post I have not been carrying my positions over night thus far, so I did not reap the full benefit of this pattern. Whilst mulling this over (isn’t hindsight a wonderful thing) I had a light bulb moment. I have been so focused / fixated on studying and trading the re-tests that I have completely ignored some of the other crucial elements that make up the Harmonic Trading System. In this instance I am referring to “Trading Patterns relative to the Trend”. As we all know markets don’t just go straight up or down, instead they experience periods of consolidation within the prevailing trend and in HT terms, these consolidations translate to Patterns! So for future reference, even if I have missed the trade off the PRZ all is not lost as I will look for smaller patterns that compliment the bigger picture.  Here’s the chart that triggered the light bulb moment.

 

The Euro chart that I manually marked up evolved into a Deep Crab and was backed up by an HA scan. The pattern yielded a very nice move on the initial test of the PRZ, but fell short of a 2^nd re-test.

 

I’d even found another smaller pattern that completed in the same area as the potential re-test, but it was not to be.

The 60min EuroGBP Butterfly Pattern also yielded a lovely move off the first test. I had been waiting for the re-test this week, but this was violated yesterday.

To summarize my week:

Not great to be honest; it has been somewhat frustrating. I have been so fixated on the re-tests to the point that I have completely failed to capitalize on trade opportunities that yielded great moves on the first test and then never looked back! These types of trades are pretty much perfect in HT terms and I quote “the stronger and quicker the reversal, the greater potential for a nice move”. (Harmonic Trading of the Financial Markets: Volume1). Unfortunately this is area that I am really uncomfortable with at the moment, and “quick and sharp” are two words that scare the life out of me in trading terms. It really does warrant my attention so that I can improve my confidence in both reading and trading the PRZ on the initial test. I also think that I have underutilized the RSI BAMM, another tool in the HT arsenal which I believe will help me.

The following chart is a snapshot is of the EuroCHF that I notionally marked up earlier in the week

 The Cad produced some nice re-test trades this week on a 60min bullish Gartley; it had completed successful 3^rd re-test yesterday.

I’ve got my eye on a larger 60 min Bullish Bat pattern should this one roll over and come back down.

To be continued…

Patterns that have caught my eye this week

The Bat Pattern on the 60 min GBP completed last Friday. As mentioned in my earlier post, Harmonic Patterns can often yield up to 3 trade opportunities. Even when the pattern fails, more often than not there is an initial nominal reaction that is tradable as long as you employ tight stops and active trade management. On this occasion the pattern yielded a very nice move on the initial test of the PRZ before rolling over and heading back down towards the PRZ.

I traded the 2^nd test of the PRZ once I felt confident that the zone had been thoroughly tested and that the market had subsequently stabilized. Once again there was another nice move up before the market rolled over and headed back yet again towards the PRZ. (I exited my position towards the end of the trading day because I prefer not to carry positions overnight at the moment)

 

 

 

 

 

 

Early this morning the market tested the PRZ for the 3^rd time, stabilized, and then offered a 3^rd opportunity to trade the pattern, if you were awake! Maybe this is the big move…..let’s wait and see.

Here is another example of my personal application of the Harmonic Trading System. I have posted a chart below of the Euro 60 min, which I have marked up as an idea of what I think could potentially unfold. It’s early days and it may come to nothing but it is an exercise that I do daily on all the currencies that I watch, (before running the Harmonic Software to scan for patterns) and I believe that it helps greatly with my understanding and application of the system, thus improving my confidence.

Here is a potential Butterfly pattern on the 60 min EurGBP that I am watching closely. I didn’t see this one myself, but it showed up on the Harmonic Analyser Software. I like the symmetry and the fairly tight PRZ. Let’s see how it unfolds.

Bearish Butterfly on the 15 min GBP

I like to look for patterns with my naked eye because I want to be able to recognize them myself  and watch them evolve as part of my learning curve, ( using this approach, being new to currencies, and only having three screens, I am confining myself to watching 3-4 currencies max 5). If I see something of interest, I will then run the Harmonic Analyzer software to see if it is a valid pattern.

 

 Looking at this pattern you can see that there was some overspill through the PRZ at completion, but soon afterwards it stabilized within the PRZ and there was an oversold RSI reading on the 15 min ( if you went down to the 1min you had a complex reading within the PRZ, but that is another story for another time). I also went up a timeframe to the 60 min and saw that the pattern was completing at resistance which gave me more confidence. As it was a 15 minute trade I would have liked to have gone down on timeframe for my entry  but the 15 minute was the only timeframe which gave me an entry trigger that I was comfortable with, so I took it.  

 

 

Initial stop 1.6345

 

I manage the trade as follows: 

 

 1 unit   .382 stop or trend line violation at 45 degrees/ 60 degrees, or take profit at B.

 2 units  first target at .382 taken from Point A, and trail second unit at .382 or trend line violation

 3 units 382 target on 1st unit, 2nd unit .618, .786, .886  and trailing stop on 3rd as above.

 

The first snapshot  is not authentic because I took it after the event. I was trying to work out how I wanted to explain the trade. In future I will snapshot it as I see it, followed by the Harmonic Analyzer scan to show that it backs up what I thought I saw.

 

 

 

 

 

 

 

 

Hello Fellow Traders

Firstly let me start by saying that this is the first blog that I have ever done.I joined Twitter to follow Scott Carney form Harmonic Trader, but I’ve never twittered, I wouldn’t know how to! I have 1  face book friend, ( Billy no mates spring to mind anyone?!)  again to follow Scott Carney,so basically I am a technophobe but the PC is a necessary tool for my work, so here goes…

 

I came across Harmonic Trader and Scott Carney ( www.Harmonictrader.com) who devised the system about a year ago, I read his books and I liked what I saw. Whilst it is an incredible body of work and was obviously no mean feat to invent,what drew me to the system apart from the fact that it works of course, is the simplicity in its required application. It’s not a black box system but it does has a very defined structure, encompassing patterns with specific ratio alignments, each  one with a specific set of rules for its application. It has one main indicator to compliment trading the patterns and a trade management system. This to my mind takes the emotion out of trading which has been one of the most difficult things for me to master.

 

I’m on a journey to master the art of trading the Harmonic system to the best of my ability but I am under no illusions that I am and will always be a student of the financial markets. I’m looking forward to sharing my experiences both good and bad in the trades that I take, sharing how and why I take a trade,if and when I screw up why it happened, and the lessons that I hopefully learnt from it.

 

I hope that you’ll join me for the ride.