I want to go over some situations on the GBP/AUD, where certain expected harmonic patterns did not work out.

Now, in trading,  nothing ever works all the time. If it did, everyobody would make money and I would probably be sitting on a beautiful carribean island, with an exotic cocktail and trade from the beach…aah what a life -:))

But seriously, that is the reason why I always emphasize on the 3M’s.  The technical system (Method) forms only a small part of the trading plan and it is the other two M’s - the Money and Mind, which are more important….and ironically the most neglected.

If you refer back to the previous posts, you can see that we tend to follow the “If-Then” procedure. We should plan our trade parameters, the expected support/resistance levels, and then FOLLOW PRICE…& NOT PREDICT IT.

We received some comments on the previous posts, about the trades not working out and about anticipating certain levels. Well, I want to add some more failed trades, only to demonstrate that one must follow price and be flexible. As they say, do not get married to a trade, or an analysis for that matter.

Looking at this daily chart of GBP/AUD, we expected a Gartley pattern to form, since the first retracement (B) was precisely at 61.8.

Hence we were looking for some resistance at C, and a further move down to complete the pattern. We would have looked at a short trade on the break of the trend line, but price did not oblige us and went higher. Our entire harmonic pattern gets negated when price breaks the high of A.

Conclusion - No trade.

Now, if price has rallied up, then we can anticipate the probable targets of this move. Using the concept of the fib projections, we can anticipate price to go upto the Fib projection 127/161 of A-B. And as we can see that price found resistance at the Fib Projection level of 200.

Looking back at a situation, its very easy to say that I could have done this or done that. But could one have anticipated a rejection at this Fib level?

If we go down to a smaller chart of the 4hr, we can identify a bearish Head & Shoulders pattern. This would have give us the required confirmation, and as seen price completed the required targets of this pattern.

Now lets take this one step further and go in the live mode -:)

This completed H&S target has given a possibility of another harmonic pattern.

Price found support at a fib 61.8 level, which points to a possible bullish Gartley.

Now this may work out or it may not, as we have seen in the past.

The advantage of using harmonic patterns is that price tends to respect the fib levels quite accurately, which give us the possible price objectives. Hence we can plan our trades regardless of the direction that price moves.

In this case -

Option.1 - if price breaks the trend line with sufficient momentum, then the expected price objective for a short trade would be 2.1436.

Option.2 - If price keeps going up, and breaks of the high of A, then we can plot Fib projections on A-B, and look for price targets of 127/161.

Bottom line - For this pair, these options become my trade plan. Till the time price does not confirm either way, I keep it on the back burner. There are other currencies to look at…or maybe I might just take a break and go to the beach -:)

Sunil.

lets have a look at an interesting situation on the monthly/weekly chart of the GBP/USD.
Observing the price movement on the monthly time frame, we can see that -

1.) Price has found support at the 50% fib retracement of the move from - Low of June 2001 (1.3680) to the High of Nov 2007 (1.2115)
2.) It has also found support on a trend line of the previous up move.
3.) Price makes symmetrical moves and one can see it has also completed a move similar to an earlier wave. These symmetrical distances often hold as support or resistance.
Now this could be looked at from a harmonic pattern view, since the first retracement ‘B’ has stopped at the 50 Fib level.

Hence we could be looking at price to rally and form the ‘C’ of the pattern, which could be 61.8 to 78.6 of ‘A-B’.

There also seems to be a bullish hidden divergence, though it’s not yet completely confirmed.
But price has found support at the fib fans plotted on the points of the divergence, which is usually a strong confirmation of a support zone.

Now this move within the bullish hidden divergence also formed a bullish “Bat” Harmonic pattern.
If we look at this pattern closely, we can see that it confirms to the specific fib ratios for the harmonic.

We follow the “If-The” principle and wait for price to confirm the moves to the long side.
The harmonic patterns usually achieve an initial measured move of the wave B-C.
Now that price has found support at this zone, the most likely price objective would be wave distance B-C, measured from the low of D.

If price gives a convincing close above this level, then we can expect the larger objectives of this harmonic pattern to be met.
Sunil.

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