Hi Folks,
Lets have a quick recap of the previous harmonic patterns that we have been following, and see how things are moving along.
(1.) Previous post of "A long trem harmonic pattern" regarding the Usd/Chf.
If you look at the daily chart in that post, we were expecting a rally from point B up. We also had a bullish divergence at that point for further confirmations.
I am enclosing the previous chart as well as the chart of the current situation, for quick reference.
Previous chart -

Current chart -


This chart shows that price did indeed rally up. We are looking at some retracements now and its time to take some profits. The bullish divergence targets have not yet been achieved, but we don’t want to take a chance.
We did catch some good moves and lets be happy with that.

(2.) Previous post of "Following up with a long term Harmonic pattern"
We were following the Usd/Jpy which was in a very similar situation as the Usd/Chf. The only difference was that we were looking at some possible bearish moves…which got negated since price did not find resistance at the fib level.
The following chart explains it -

So, as they say…be prepared, but wait for price to confirm and then take a trade…..never assume.

Following up with the Usd/Jpy -
Previous chart -

We were expecting an up move for the targets of this bullish Gartley to be achieved.
Present situation -   

Price did rally up only to find resistance at a trend line & again, we dont assume anything. Time to take some profits.

(3.) Previous post of "A Gartley on the Looney"
This was an excellent trade and an ideal situation where price follows the harmonic patterns. We were looking at a harmonic pattern on the daily time frame on the Usd/Cad, and looking to trade the individual waves of the pattern.
The first one went off quite well -
Previous chart -      

Current situation - 

Trading within the pattern, we caught an excellent move of 175 points.
At present, we closed the trade since we are now expecting a down leg towards the point ‘D’ of this pattern.
Will price respect the pattern and give us the expected move?
Again, we dont assume. We set our levels and follow the "If-Then" situation.
If price breaks a certain level, then we think about shorts…..or we dont trade.

(3.) Previous post of "A Gartley or a Bat…or nothing?"
We were looking at a bullish Bat pattern on the 4hr Eur/Usd. This was a pattern to be taken with strong confirmations, since price has been in a strong downtrend and going against the main trend is like standing in front of an incoming train.
This trade was not taken, but I am mentioning it here for academic purposes…to prove that price does indeed respect the fibs.
Previous situation -

Current situation - Price did indeed find support and though we are not thinking long, we are looking at some more up moves to fulfill the targets

Sunil.

Hi,
We leave harmonics aside for the time being & have a look at a possible bearish Head & shoulder pattern on the Nzd/Usd weekly chart.

The chart shows the pattern which is quite symmetrical and price has broken the neckline.
So do we expect the downtrend to go to the expected targets?
Well, as always, price can do funny things, and especially when you are very sure of something.
So lets take things step by step.
If we drill down to the daily time frame, we can identify a harmonic pattern at the neckline.

Now I said "a harmonic pattern" and not "the harmonic pattern", because these fib ratios do not fit into any of the regular patterns that we use  - the Gartley, the Bat & the Butterfly.
This is an ABC correction, which follows the principles of the harmonic patterns.
But the first corrective wave to the 38.2 level & the second corrective wave to the 61.8 level,  is not part of any of the above mentioned patterns….which just goes to show that the harmonic  patterns are very specific in  structure & hence very accurate.
Now should we name this particular pattern as the "Sunil pattern" ???   he.he.he. !!!
Anyway coming down to business, price reactions around fib levels are quite accurate & this pattern did push price to break the neckline of the larger H & S pattern.
Hence we can expect price to continue to the harmonic price targets - the 127/161 fib projection of c-d.
This should push price well into the territory of the H&S target zone, which could set the tone for further down moves.
So, another long term pattern to follow.
Such large moves with the correct money management parameters,  should more than take care of the smaller losses that  one would have incurred.
Sunil.

Hi folks,
This is with reference to a potential setup on the 4hr chart of the Eur/Usd, which was also commented upon in the previous post.
We are looking at a potential rally to the upside on the Eur/Usd….but right now the downtrend seems to be pretty strong.
Even if one has a potential setup which looks perfect, one must have a look at the overall situation & decide on the trade by taking that into consideration.
Hence we anlayse the situation and follow the "If-Then" procedure.
Which simply means that keep yourself prepared for potential moves (in either direction) and do not enter till price gives the confirmation.
Lets start by looking at the potential bullish harmonic pattern.

Looking at this chart, it seems to be a close call between a "Gartley" and a  "Bat".
A Gartley has the retracement of ‘B’ at 61.8 (of XA) and the Bat has the retracement of ‘B’ at 50 or 38.2 (of XA)
Now in this situation at ‘B’,  we do not have a close below the 50 level, so we can assume a Bat.
Especially since the ‘D’ level has gone beyond the 78.6 retracement (of XA)
Frankly, this is the point which indicates the underlying momentum is still strong to the downside, and if and only if, price finds support at the 88.6 level, we think about long trades.
If price slices through the 88.6 support level, then we re-analyse our charts.

As I said, lets get prepared for the trade - the "If-then" procedure.
If we do get support at the 88.6 level, then our trade conditions should be based on the fibs as shown in this chart.

I would consider a safe entry on the break of the Fib 23.6 level, as that will indicate the bullish momentum.
The risk-to-reward ratio works out extremely well, as in all the harmonic patterns.
Sunil.

A possible harmonic pattern on the Usd/Cad.
Now this is one currency pair which is a two faced devil. It will meander along steadily & suddenly turn around and bite you.
I compare it to a roller coaster ride. If you are on the right side of it, then enjoy the ride. But if you are in the wrong side…then God help you -:))
Getting a good technical setup on the looney is like hitting a jackpot -:)
We could be looking at a bullish Gartley on the daily time frame & I want to make one point here. Due to its volatile nature, its best to look for setups on the Looney on higher time frames.
I have enclosed the chart of the possible bullish Gartley and there are still lots of "Ifs & Buts" to this setup.

Again, my reason for looking for a possible harmonic pattern is the precise retracement to the 61.8 fib level…which sets the tone for further moves.
Its something worth keeping an eye on.

Sunil M

Hi folks,
As discussed last week, we are following on the expected harmonic pattern on the Usd/Chf.

Referring to the daily chart of the last post, we had a bullish divergence & are expecting price to rally into the point ‘C’ of the harmonic pattern.
Now since we are looking at the daily time frame, it will take some daily bars to give us a confirmation of the move, but we could be looking at some consolidation / pause / pullback before the expected uptrend.
There could be a bearish harmonic pattern developing on a smaller time frame, but we will comment on that once we have some confirmations.
As of now, we still have a bullish bias.

Since we are on the follow up, lets follow up on the earlier pattern of the Usd/Jpy on the daily time frame (earlier post of ‘Catching the Butterfly & playing with the Gartley’)

If you compare the chart from that post to this chart, we can see that price reached the expected fib targets precisely…AND bounced from there for the expected longs.
Hence we are still looking for some long targets to be fulfilled.

But let me spoil the party -:)
If price stopped dead at the expected fib levels earlier, then we can safely conclude that we expect price to react at those levels.
As of beginning of this week, we can see that price stopped dead at a 78.6 level….and a trend line resistance.
Can we expect a rejection & hence a bearish move??
The resistance at a 78.6 points to a butterfly pattern, so should we look at a bearish butterfly?

Well, lets wait for price to tell us where it wants to go, but it should turn out to be an interesting exercise.

Sunil Mangwani

In an earlier post (The harmonics with a Head & Shoulders pattern) we had discussions about analyzing the “pro-active” harmonic patterns. I had replied to the comments & want to add some more points to it.
My comments about not being ‘predictive’ may be misconstrued as not applying the technical knowledge to actual trading.
Finally we are traders & we are here to trade. All our efforts, our learning, our understanding of the technicals have but one purpose.

To use that knowledge to achieve success in trading.

But the unfortunate fact remains that most traders lose money in trading.
The simple fact is that implementing technical analysis alone is not enough to be successful. One has to apply all the 3M’s – Money, Mind & Method - to achieve success.
The Money & Mind part is controlled by the individual trader alone, and nobody else. He/She is solely responsible for these 2 factors, which are more important than the Method.
So, even if you have the best ‘Method’, you will not succeed unless your ‘Money’ & ‘Mind’ are not applied correctly. Period.
There is no ambiguity in this and there are no two ways about it.

The reason why I am mentioning this point is because of this particular pattern that we are looking at. We are analyzing a harmonic pattern on a weekly time frame and I want to demonstrate an effective way of “proactive” analysis.

We are looking at a possible Bullish Gartley forming on the weekly Usd/Chf. Now the first point is that if this pattern does complete, then we are looking at some strong reversals here. A harmonic pattern occurring at the end of a long trend becomes a very powerful reversal setup & we could be looking at some strong rallies in this pair.
But, let us take things one step at a time.

Looking at the chart, we can see that the point “B” seems to have formed since price has found support at precisely the 61.8 retracement.
Now we are being extra “proactive” and hoping for the next 2 legs of the pattern to form. Hence we are looking for a rally, then a down move AND THEN a change of trend with a stronger rally to the upside.
The chart shows the expected levels, which if formed, could see the completion of the pattern.
If these expected levels are not formed…then we don’t have a trade.

Now, why am I thinking of a harmonic pattern?
Is one retracement at a fib level enough to think about a harmonic pattern?
Since we know that price respects fib levels, this could just one of the many levels that price has found support on.
So it could turn into a harmonic pattern or it could not.
But we have 2 factors supporting this view.
One, the current weekly bar seems to be forming a reversal candlestick pattern. If we do get a weekly reversal bar (at the close of this current week), then we are looking at a rally in the coming week.
Secondly, if we shift to the daily time frame, we can observe a bullish divergence…at the harmonic point of “B”.


And the expected target of this divergence coincides with the expected “C’ of the harmonic.
Hence we could be looking at a possible Gartley in the process.

Now we come back to our topic of “forexology” and the approach to pro-active analysis.
We are not sure that the expected pattern will play out & price could suddenly reverse to the downside, throwing all our detailed analysis in the wind.
Hence one must take an “If-Then” approach.
If price breaks this level, Then we do this….or price breaks that level, Then we do that.
And in between, while waiting for a confirmation, we are in a “No-Trade Zone”
In this way, we are not trying to predict the price movement & yet are prepared with our plans once price decides to move.
I would like to take this example for demonstrating this approach & would like to follow the price & take decisions on every change of trend.

Step.1 – We wait for the break of the trend line on the daily frame. That should give us the indication, that price has a high probability of reaching the level “C” of the harmonic.
If it does not then we re-analyze the charts and look for other setups.
We will be following this & will keep updating the price movements.
Sunil Mangwani

Hi,
We finally found a “Crab” harmonic pattern and I am attaching the chart image with the specific parameters.

There are couples of points here, which are worth mentioning along with the analysis of the pattern.
One, this pattern has formed on a smaller time frame of 15mins, which goes to show that the harmonic patterns are valid & effective across all time frames.
Secondly, with reference to a previous comment - “should one use additional tools like the stochastic/MACD for additional confirmation” – I would say that the answer lies within the question -J
“Additional confirmation”.
As long as you use the indicators as a secondary confirmation & not as a leading factor, then yes, they certainly help in confirming the price movements.
Like the example we have here – the reversal point “D” of the Crab pattern also had a bullish divergence, which is the additional confirmation.
But again, one must remember that price is the leading indicator & we have seen the effectiveness of price reacting at the fib levels.
As far as this setup goes, price bounced exactly at the 88.6 level & it seems to be rallying towards the expected targets.
I don’t like to be predictive and judge the extent of the price movement. But harmonic patterns are very effective & even though one can expect price to fulfill the expected targets, one should go in a trade with a proper trade plan.
Remember, now you have an edge & you must take advantage of that.
Sunil Mangwani.

Hi,
There are times when we get a second confirmation of an expected price movement.
We have an ongoing trade on the spot Gold, where a harmonic pattern was analyzed & subsequently the price target was confirmed by another chart pattern - the Head & Shoulders.

This chart image shows the bullish Gartley which has been in process for some time.


In this Gartley though, the initial fib retracement of ‘B’ was not precise, but the other legs of the pattern formed accurately.
The parameters of the pattern have been laid down on the chart & I have plotted the fib projections for the expected price targets.
Price has broken the 127 fib level & we can expect a move to the 161 fib level…at least.
Should we close our trades when price gets to the 161 price target?
Ideally, yes.
Once a price objective has been met, one must always take the profits from the table.
But in this case, we can also identify a bullish Head & Shoulders pattern.

As seen in the chart, the price objective of this H & S pattern is yet to be achieved.
And it coincides with the fib projection level of 200 of the Gartley.
Now, even though the H & S objectives are usually met, there are no guarantees.
At the risk of repeating myself, we should take profits when we can, since we are traders & not astrologers -:)
Ideally, one should take most of the profits when (& if) price achieves the 161 fib level of the Gartley & still keep some positions running…in case price achieves the H & S objective.
That way you are positioned to take advantage of the larger moves & at the same time have already added to your capital.

The bottom line is that price action is never random & each & every price wave, will give you clues for the next wave….if you learn to look for the clues.
Happy trading.
Sunil Mangwani.

Hi Folks,
Some more harmonic patterns formed precisely at the fib levels.
I want to discuss 2 separate patterns here, and combine the inferences to look ahead.
Price does respect the fib levels, as we shall see, but finally there is a certain amount of discretion required to look ahead.
First the Usd/Jpy -
On the daily time frame, we are looking for a completion of a bullish Gartley.

So, at present we are looking for price to go lower to complete the last leg of the pattern. Subsequently price may reverse from this level to give us a strong uptrend….but lets take things one step at a time.
Present circumstances - Technically the Usd/Jpy should weaken to 104.00 (appr.)

The other harmonic pattern is a Bearish Butterfly on the Nzd/Usd 1 hr time frame.

Due to precise nature of the fib levels, this pattern was traded intraday for longs.
As of now, the pattern has been completed, and we should be looking for reversal down.

Now logically, if the Usd/Jpy is to weaken further, its would mean that the Nzd/Usd should gain.
Hence at this stage, one of the above 2 patterns would not reach the logical conclusion.
This is where the "Trade plan" comes  in.
Using personal discretion, one has to decide which pattern would have a better chance of completing.

One will come across such kind of contradictory situations quite often & I would like to make some relevant points here -
(1) Since we have seen the precise nature of the fibs, one should try & identify harmonic patterns on longer time frames & take trades within the pattern. In this way, you are not leaving anything to guesswork.
(2) In this present situation, a pattern on the daily time frame obviously has more weight age, than a pattern on the 1hr. So logically, I would be biased towards the Usd/Jpy.
(3) Lastly and the most important point - use proper money management, define the entry, exit & stop levels precisely, and take profits at the correct technical stages.
Remember, you are here to make profits, and there are no brownie points for the correct guess.
Sunil Mangwani

Hi D Bista & Su25,
With reference to your comments on the “textbook Gartley”, I thought it would be a good opportunity to classify the different harmonic patterns….the way I see them.
Now, I have not come across this kind of classification anywhere & I could be wrong in my conclusions.
But over the number of years that I have been studying the fibs & harmonics, I have observed these subtle differences.

The best way to look at a harmonic pattern is to classify it as -
An impulsive wave (X to A) followed by two corrective waves (A to B and C to D) which ultimately gives rise to a larger impulsive wave (the price targets)

The main points that I follow are -

• The retracement of X-A to point B usually identifies the kind of harmonic pattern that should ultimately form.

• Point C is generally the weak link in the pattern. The retracement of A-B to point C could form at any fib ratio, right from 0.382 to 0.886.

• Point D is the ultimate confirmation point of a harmonic pattern. ‘D’ will always form at a confluence of 2 fib levels (depending on the type of pattern) and these fib levels are very accurate. The 2 fib ratios (the Retracement of X-A AND the Projection of B-C) form precisely at the expected levels.

Let’s have a look at the specifics of the retracement ‘B’ (of the move from X to A) –

• If ‘B’ is a shallow correction, and retraces to 38.2, then ‘D’ should form at 0.886 of X-A. – The Bat pattern

• If ‘B’ is a normal correction, and retraces 50.0 to 61.8, then ‘D’ should form at 0.786 of X-A. – The Gartley pattern

• If ‘B’ is a deep correction, and retraces 78.6, then ‘D’ should form at 1.272 of X-A. – The extended Butterfly pattern.

You will notice that the location of ‘D’ is based on the fib ratios of X-A, and the fib ratios of B-C have not been taken into consideration.
This is because I have observed that the B-C projections may vary from one fib level to another, but the fib ratios of X-A always form at the precise levels.

Another point is that I have not specified the other extended harmonic pattern of the “Crab”.
Very frankly, I have not been able to identify this pattern correctly while trading & I am still struggling to get the correct identification points for it.
The day I get it, you will be the first to know -J

Finally, some amount of discretion is required, since price will never behave exactly the way we expect. But this classification has given me an edge for the anticipated price moves & I hope it does the same for you.

I have attached an image showing the different types of the harmonic patterns for reference.
But again, from my experience, I have seen that it the Gartley & the Butterfly which occur more often & I would concentrate on these 2 more.

Sunil Mangwani.