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