Lets follow with some anticipated harmonic patterns on Gold (refer to the earlier post of “Gold again”)
On the daily time frame, we had discussed 2 alternatives and we were going to decide on trades based on which alternative was fulfilled.
So far, price seems to have fulfilled Alternative.1 of a bearish Gartley pattern.
But now, we seem to have a confusing situation -

Looking at this chart, we can conclude that the wave B-C has completed and price should rally higher now to complete the wave C-D.
This means that we can expect some more rallies in this pattern.
But if we look at Alternative.2

The present resistance seems to have formed precisely at the 61.8, which can be classified as the “B” point.
In that case, we would expect a down move to complete the wave B-C.
So, do we look at long trades or short ones?
The practical approach, of course, will always be the “If-then” method.
We wait for price to confirm the moves, before we decide to enter the trade.
But some additional confirmations always help & we should look for some other factors to swing the balance.

Let’s start with a very common question - Do Fibonacci ratios really work?
Looking at this weekly chart of Gold, we can see that price has formed waves at precise Fib ratios.

I have labeled the waves as A-B-C-D-E-F-G, simply for convenience and if you plot the Fib levels as described in the chart, we can say that price respects the Fib levels.
But this could be just a coincidence, couldn’t it?
As one skeptic once told me - “You have so many fib levels plotted, that every turning point would happen at some Fib level.
He had a point & it’s entirely possible.
But in defense of my approach, coincidences don’t occur very often, do they?
We can have a coincidence once, maybe a coincidence twice.
All right, 3 times a charm and we can even have 3 coincidences.
But coincidences happening 5 times in succession….Naaah!!!
So, coming back to the earlier point of having some additional confirmations, in spite of the strong fib “coincidences”, I would still look at some other factors to confirm the fib levels.
Which brings me to the topic…is price action random?
Looking at the previous Fib levels, we can certainly assume that it’s anything but random.
And to further reinforce the fact, have a look at this chart.

It’s the same weekly chart, with the waves A-B-C-D-E-F-G.
But now we don’t look at Fibs at all, but identify simple horizontal levels of support/resistance.
And we can see that each and every Fib ratio (mentioned in the earlier chart) coincides with a level, that price has respected earlier.
And this is a fact that we can take advantage of. While there may exist numerous levels of previous support/resistance, I would look for a confluence of these levels with a Fib ratio.
This gives me a stronger indication of price movement.
Coming back to the current situation, we seem to have a strong resistance at point “G”, which is also a fib 61.8 ratio.
Hence the possibility of this level holding price is quite high & if it does, then we can anticipate the extent of the possible down move.

We again use the similar concept and target a 61.8fib level…which is a strong level of previous support/resistance.
Bottom line - by using these factors we are prepared with our trade targets. If price breaks higher, then this is the next resistance level & if it breaks lower than we have the next support level identified.
Most of the times, it’s the exit of the trade which is more important than the entry & by predefining the exit levels, you have given your trading that ‘edge’.
Sunil.