Hi folks,
Lets get a dose of reality & look at a situation when an expected harmonic
pattern did not achieve the required targets.

In a previous post of "Still continuing with the harmonic patterns",
we analyzed a possible bearish Butterfly pattern on the Aud/Chf.
I am enclosing a chart of the present situation and if one compares it to the
chart in the previous post, we can see that the expected targets were not
achieved.

Which brings me back to my subject of "Forexology" -:)
One can never expect every trade to be successful. If you do, then you are
living in a fools paradise and you have lost even before you have begun.
Most newbie traders come in with unreasonable expectations and cannot accept
losses. This is one of the prime reasons for the trader’s failure.
It is only the experienced trader who realizes, that finally it is not the
technical setup which is important.
It is the proper use of the 3M’s - Money, Mind & Method (in that order)
which will ensure success.

Coming back to our example of Aud/Chf, I have always emphasized that one must
take profits at certain levels, to ensure that a winning trade does not turn
into a losing one.
As they say "A Dollar in hand is worth Two in the trade" -:))

In this case, I have plotted the fib levels from A to D, for expected fib
projection targets.
We can see that price stopped exactly at a fib retracement of 61.8 and changed
direction.
Now when price stops dead at a precise fib level, it tells me something has
changed.
In this case, one would have taken some profits at this stage, and maybe still
have some positions in the trade…in case price decides to "behave".
This ensures some profit has been added to my account.
However small the amount may be, its better than a loss.

Sunil Mangwani.

Hello,
This is with reference to a comment posted earlier about a possible harmonic pattern -
"Could u look at Eur/USD 15 or 30 chart, there is a bullish gartley in the making,though its not ideal?"

As a matter of fact, this particular Gartley was an absolute textbook pattern, and I wanted to showcase the power of Fibonacci ratios.
I have enclosed the chart with the Gartley pattern clearly explained, and all the wave structures of the pattern formed at precise fib levels….to the ‘T’.

The most important point that one can see is the reaction of price at the precise fib levels.
Once we have such a precise price structure, the possibility of the targets being reached is very high.
Without getting into a predictive inference, lets put more emphasis on the fact that "price does respect fib levels"
Does this not give you an edge?
If we try and identify harmonic patterns on larger time frames, then one can trade the waves of the pattern on a smaller time frame, with the confidence of knowing the exact targets…..much before the crowd.

Trading is a business of probabilities & that edge is often the difference between success & failure.
Sunil Mangwani.

All right, we are taking the harmonic patterns one step further.
Harmonics within harmonics !!!!!
You must be thinking that whatever will this man think of next -:)

I was analyzing the Eur/Jpy based on the comments of Su25 (who else -:) and
noticed something which I thought would be worth sharing.
Lets start with the Eur/Jpy 1hr.

This chart shows the expected bullish Gartley. As usual, I have specified the
parameters of the pattern with the specific fib ratios in the chart.

Now coming to forexology –
At this stage, price is almost on the completion of the last
leg of the pattern. As su25 rightly pointed out, it has stalled at the 61.8
level and there is a possibility that the pattern may not complete.
So, we sit on our hands & do nothing.
I don’t believe in trying to predict the direction that
price is going to take….there are no points for the right guess -J

But we follow the price and keep our trade plan ready.

In this case, if price does go down AND find support on the
78.6 level, then we get ready for a long.
If not, we look for other trades, or go for a swim or a
round of golf -J

 Okay, so that is the plan for the 1hr.

 Now I would be biased towards the view that price should
complete this pattern, because on the 4hr, we can identify a bearish butterfly.

Again it is an expected pattern and the parameters have been
defined in the chart.
But lets take a closer look at the leg B-C of this
butterfly, which is yet to be completed.

Price could come down to the support level ‘C’…WHICH IS THE
LEVEL ‘D’ OF THE BULLISH GARTLEY ON THE 1HR.

If at all this situation occurs, then price is expected to
rally from here to go up to the level ‘D’ of this 4hr butterfly….WHICH IS THE
EXPECTED TARGET OF THE BULLISH GARTLEY ON THE 1HR.

 So, Harmonics within harmonics ??
Will they work…..we don’t know.

But for the serious learners of the harmonic patterns, this
is a good exercise in spotting patterns.
Have fun.

Sunil Mangwani

Hi Folks,
Ok, another harmonic pattern to discuss & analyse -:)
On the Usd/Jpy - 4hr, we have the possibility of a bearish Butterfly pattern.
(Nice names…by the way…butterfly, crab, bat…all sorts of insects & birds -:)

Anyway, back to business -
I have enclosed the chart showing the expected moves within this pattern.

Now, again, I must emphasize on the point, that one can never be sure of price going the way you expect.
We are traders & we want to pull out profits from the markets.
This is why I tend to identify these patterns on longer term time frames.
Firstly, we can trade intra day in the direction of an expected move. Now this expected move is one leg of the pattern identified on the longer time frame.
Secondly, we take advantage of the fact that price has a very high probability of reacting at the Fib levels.

Taking this example, we can see that price found resistance (at B) at the 78.6 Fib retracement quite precisely. Hence one would tend to take short trades from here, since a fib resistance is an important level.
I would initially trade a short only till the expected target (of C, as shown)
If price does manage to move as anticipated, then we think of the next leg.

Putting "Forexology" into practice, plan your trade and then go for it with no second guessing.
The advantage of the Fib levels & the harmonic patterns, is that they tend to play out quite successfully.
This can give you a definite advantage.
Sunil Mangwani

Hi folks,
It looks like my subject of Forexology is being pushed to the background -:)
The contents of this blog were (& still are) devoted to the other aspects of trading - money management & the psychology of trading.
As I had mentioned, there is enough content available on technical analysis.

But I had not reckoned with the power of Harmonic patterns.
Since we have started discussing harmonic patterns, I have been getting a lot of comments/ questions on these patterns & coincidentally, we seem to be seeing them everywhere.
The fact is that these patterns are very effective, since they rely on specific Fibonacci ratios.
And at the same time, they have a slightly complicated structure.

Once I have started with these patterns, my intention is to continue to delve into these patterns specifically, and try and make them simple and easy-to-understand.
And based on the comments / mails that I have received, this seems to be the general consensus.

I think I should re-name my blog as "Forexolgy & Harmonic patterns" ?? -:)

So lets go ahead and combine this effective pattern with the non-technical aspects of trading.
I will be discussing Harmonics as & when we spot them & also write my thoughts on "forexology"….and will continue to do so, till I get brickbats -:)

Sunil Mangwani

This is actually with reference to a comment from the previous harmonic post about a trade setup -

Hi,
We had the live coverage of the ECB interest rates and the NFP data, which turned out to be a great event. It was 2 hours of live coverage and watching the market reactions to the important data.
It was covered by Valeria and myself and was watched by more than 1600 users.

I am posting the conclusions of the event -
Valeria Bednarik -
As Sunil said, the less hawkish comments and the expectations os a far
worse Payroll turned market dollar positive: the fact of buying the
rumor selling the news expresed at the beginning of this live coverage,
was pretty clear today: market priced in the 4.25 but not the tone of
Trichet speech. although the day is far from over, the close of today’s
candles will pretty much help us to define dollar future: we have DJIA
opening in a few seconds, and some more data in the US the ISM non
manufac. A bad reading there could trigger a correction from here. yet
not much more turns

Sunil Mangwani -
The ECB raised the interest rates by 25 basis points, which was widely
expected and factored in by the market. Hence the initial reaction to
the currencies was quite muted. It was the NFP data & the speech by
Trichet   which finally saw some large movements. As discussed, the
Euro did not rally since the ECB comments were interpreted as "not
hawkish", and this could set the stage for some pullbacks in the
Eur/Usd. Technically some support levels at 1.5700 could still hold,
but for a short time,we could see some retracements on this pair.

Regards,
Sunil.

Bingo !!
This is what one would want to say, when your analysis is followed to the "T".

We have been following the Usd/Jpy (refer to the previous post of Harmonic patterns) and price has respected the Fibonacci levels quite precisely.
Skeptics may say that the anticipated price action may have taken place due to fundamental factors.

Well…maybe…It may have been the trigger for the move, but  why would price react  at specific levels?

But lets not gloat over one good trade.
Trading is a game of probabilities & we should always expect losing trades (giving the skeptics the opportunity to say…"see I told you so" -:)
So lets take this as an example of a well prepared trade…in the process.
The trade is still in the process, even as I write & still has to be managed.

Coming to the technicals & replying to an earlier query - Since the target of 106.75 was achieved, will 104.50 be the next target?
The setups of the bearish Elliot wave & the bearish Gartley certainly point to the 104.50 level.
But again, managing the trade & money management play a key role in the success of the trade.

I would recommend taking profits at certain levels in between & then following the price with trailing stops.
We don’t want a winning trade to turn into a losing one, and small profits are definitely better than any losses.

Plus with 2 important fundamental news expected on Thursday 3rd July, lets not take any chances.

Both the data releases (of the ECB interest rate & the US NFP) are expected to have a major impact on the currencies.

Incidentally, FxStreet will be covering these important events live.
Valeria Bednarik & myself will be the experts for this event
http://www.fxstreet.com/fundamental/analysis-reports/central-banks-special-coverage-ecb/2008-07-02.html

Sunil Mangwani

Hi Folks,
Just wanted to put in a clarification for the previous posts.

The post of "Harmonic patterns" was actually a reply to a comment of the previous post of "Keep it simple".
It inadvertently got posted as new entry, and I want to give the correct link back to it.

Sunil.

Hi su25,
Well, you answered the question before I could -J
But in any case, let’s go over the harmonics, since this would be a nice example of applying it on the live markets.

I have attached a chart showing the Gartley that you identified, which, by the way, was identified nicely.
As the comments on the chart mention, we would expect price to rally up to the pt.D of the pattern, since the confluence of 3 levels seem to forming quite accurately.

If, indeed, price does go up to this level AND finds resistance there, then we are looking at some strong down moves.

The ideal way to trade this pattern would be -
Enter short at the break of (the high of) pt.B.
Stop to placed above pt.D.
Expected targets – Fib projection 127 / 161 plotted from pt.A to pt.D.

Another confirmation of the expected down move is that we had observed a bearish Elliot wave…before we had this Harmonic pattern.

We had been following this Elliot wave in my live trading room, and I am attaching a chart image which was taken during the Asian session…much before price moved to this level.

This finally brings me to the conclusion.

Tell me that Fibs don’t work -J

Whether you identify an Elliot wave, or a harmonic pattern, both of them are based on Fibonacci ratios.
Now, we don’t know whether this pattern will play out as per our analysis.
I repeat myself by saying that we are traders, and not astrologers.
We don’t predict where price is going to be.
We follow price movement and take trades at the correct levels.

An awareness of the Fibonacci ratios & the knowledge that price respects these levels, would have made some good trades within this entire setup.

Sunil Mangwani.