- What Is Harmonic Trading?
- Order within the Chaos
- Three Stages of Harmonic Trading
This chapter is from the book
This chapter is from the book
This chapter is from the book
Three Stages of Harmonic Trading
Harmonic Trading utilizes an enormous array of effective Fibonacci alignment combinations to define patterns. However, Harmonic Trading does not stop at the identification of valid patterns. Although it is the important first step in defining potential trading opportunities, specific rules and guidelines are required to maximize the management of a position. There is more to profiting from the patterns than just proper identification. The other aspects of trade execution and position management are equally as important to maximize profit potential and to reduce risk exposure:
- Trade Identification. Regardless of what type of trading system is utilized, the initial step is identifying a potential opportunity. Harmonic Trading techniques utilize historically proven and repetitive price patterns that capitalize on overbought and oversold signals generated by the market’s technical price action. A good portion of this material is dedicated to identifying and differentiating harmonic price patterns as quantified by Fibonacci ratio alignments. Understanding the differences among the various harmonic patterns is essential to capitalize on specific trading opportunities.
- Trade Execution. After accurately identifying a potential trade opportunity, the actual trade must be determined. Several considerations must be assessed within a specific time period defined by the potential opportunity. The validity of the pattern must be determined, and the final action of executing of the trade or not must be considered.
- Trade Management. After the execution action is decided, there are a variety of general considerations involved within the trading process. If the trade was executed, the position must be managed with specific rules to maximize the profit while minimizing the risk.
These three stages are important to consider as the general process of trading harmonic patterns. As I said earlier, any system utilized to trade the markets must identify a potential opportunity, execute the trade, and manage the position until it is closed.
If these concepts are new to you, I recommend that the identification of patterns be thoroughly understood before executing trades. The essence of Harmonic Trading is the ability to differentiate price structures based upon specific consecutive Fibonacci ratio alignments. Therefore, a thorough comprehension of the specific pattern price point alignments is an essential first step to successfully trade these situations. The other skills of effective trade execution and acute trade management are equally as important and represent the necessary elements to consistently profit from the Harmonic Trading approach.
Harmonic Trading utilizes the best strategies of Fibonacci and pattern recognition techniques to identify, execute, and manage trade opportunities. These techniques are extremely precise and comprise a system that requires specific conditions to be met before any trade is executed. The Harmonic Trading approach offers information regarding the potential state of future price action like no other technical methods. The unique measurements and price point alignment requirements are some of the unprecedented methods that differentiate this approach from other technical perspectives.
If you are new to Harmonic Trading, these techniques will open your eyes to many effective strategies that can indicate the potential future price action. If you have experience with these strategies, the material in this book will enhance your understanding of specific situations and offer many pattern-specific techniques that will improve your trading performance.