Let’s have a look at another long term harmonic pattern - a Bearish Butterfly on the weekly time frame of the Aud/Nzd.

If we look at this chart, the pattern seems to have completed and is poised to take price down to the anticipated target zone of the pattern.
The fib ratios have been met quite precisely and hence there is a strong probability of the anticipated move being fulfilled.
Now even though the pattern looks nice, one should not jump into a short trade.
Any trade has to be planned, and the correct entry, stop and exit levels need to be precisely determined….before you enter a trade.

There are never any guarantees that price will fulfill the required objectives and it is only the correct money management approach which will increase the account equity.
Hence we must take into account mid level support zones and ride the trade by taking profits at these mid-support zones.
Let us identify some support zones, which will become our ‘Take-Profit’ levels, if price moves as per our expectations.

In any harmonic pattern, the initial objective should be determined by a confluence of 2 factors.
(a) We use the "Measured Move" concept, and calculate the distance of wave ‘B-C’. This distance deducted from the high of ‘D’ should give the initial support zone.
(b) The fib retracement levels of the wave ‘C-D’ also offer the initial support zones.
We can notice a confluence of these 2 factors at the Fib retracement 50.0 (of C-D) and designate that as our initial price target.
If price manages to break this level, then we can expect further price objectives at the 127.2 / 161.8 fib projection of the wave ‘A-D’.

Now that we have our exits in place, we should similarly plan the entry and the stop levels.
One could drop down to a smaller time frame to look for a “technical trigger” for a short trade. There seems to be pullbacks forming and one may not get an entry immediately, but at least one is prepared for the trade.

Sunil