Price action is never random and if you take the trouble and efforts to understand the chart patterns & simple levels of support/resistance, you can definitely get that “Edge” in your trading.

Let us have a look at the Usd/Cad chart of 1hr, where we had price giving us a definite structure. Understanding these structures gives us the anticipated moves of the subsequent price action.
Again, one must use these tools to follow price and not to predict the price. Hence our “Edge” is the fact that we can plan our trades in advance….before the crowd.

1.) Pattern.1 - Elliot wave.
Let’s start with the bearish Elliot wave. As we can see in the chart, this down trend formed a nice 5 wave impulsive pattern.

Now looking back at the chart and identifying any pattern is very easy, but trading the “hard right edge” of the chart is a different ball game.
It’s not easy to analyze the price action when we don’t know how the next bar is going to form.
So, let’s keep it practical and accept that we had identified this bearish Elliot wave, after it completed. Simply put, we did not trade this bearish move, since we did not identify the wave when it was forming.
But knowing that this is an Elliot wave, also gives us some clues for the subsequent price action.
Let’s first confirm the basic rules of the Elliot wave -

1.    We can clearly identify a 5 wave pattern with 3 impulsive waves and 2 corrective waves.
2.    Wave.3 is the largest of all the impulsive waves.
3.    Impulsive waves 1 & 5 are similar in structure.
4.    The rule of alternates is followed in the corrective waves - If wave.2 is a sharp and strong retracement, then wave.4 is a shallow & consolidating retracement.
5.    Wave.4 should never go into the territory of wave.1
6.    The corrective wave.4 usually forms with a hidden divergence and the last impulsive wave.5 usually forms with a regular divergence.

With all these conditions being satisfied, we can assume that this was an Elliot wave. Hence we can estimate the further price movement, since the rules of the Elliot wave say that there should be an ABC correction after the completion of the 5 waves.
This ABC move usually retraces to 50% (minimum) of the entire Elliot wave, and we now have an estimated direction & an expected target.

2.) Pattern.2 - Divergence.
Let’s go the next chart pattern, the bullish divergence.

The target objective of a divergence is usually the fib projection 127.2/ 161.8 of D2-D3. As we can see in the chart, the 127.2 fib level coincides with the previous target of the ABC correction.
Hence we can designate this area to be a potential target zone and we would have a very high probability of price reaching this level.

3.) Pattern.3 - Harmonic pattern.
After price completes the previous 2 patterns of the Elliot wave & the divergence, we have a bounce from the support zone and a subsequent harmonic pattern - a bullish Gartley.

Let’s have a look at this pattern on a smaller time frame

We can see that this pattern formed with precise fib levels and hence we have a strong probability of price fulfilling the expected bullish objectives.
The price objectives of a Gartley pattern are usually the fib projection of 127.2 / 161.8 of A-D.

As we can see that the 161.8 fib projection is pretty close to the targets of the earlier patterns. Hence we can now identify a high probability target zone.

The combination of all these patterns has given us a potential target zone and this becomes very important.
Knowing when to exit the trade is probably more essential than the entry itself, and one can mange the trade and the risk properly.

To add to the fun, let me throw in one more harmonic pattern -J
We can identify a bearish butterfly also, which seems to have completed.

Let’s have a look at this pattern on a smaller time frame.

Again, this one seems to have completed with precise fib ratios, and hence we can expect the bearish price objectives to be met.
Supporting a bearish move is the fact that price seems to be losing momentum as the stochastic indicator is not confirming the last highs of price. (As seen in the previous chart)
So, we could be looking at a possible bearish divergence.

As an example of managing a trade based on this knowledge, we have possible bearish moves and price is quite close to our bullish target zone.
At this stage, one would probably take most profits from the bullish trade, and yet leave something running…in case price still manages to get to the target zone.

As they say - Well prepared is half done.
Sunil.