"Ratios & Harmonics: a Different Way to Trade." Summary

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Post# 259 Dec 30, 2012 9:24am


Okay finally the PRZ. LOL

Now that we have identified where the potential PRZ is, what do we do when and if price gets there? What are we looking for that would give us the signal to engage? Well the simple truth is that it really is up to you and what you are comfortable with. What reversal signal do you feel comfortablewith 1,2,3 patterns, engulfing, pins, hammers, price rejections? All these arefine and what works for one may not work for others but I will tell you how I handle this magical zone.

Before I do this let’s talk about pricing. As traders I hope you would always be looking to buy or sell at the best possible price. This best price it as close to a top or a bottom as possible. I use the term buying or selling at wholesale. The majority of traders out there are retail traders this group of traders are the breakout traders and indicator traders. Their signals get them into a trade later and at a less favorable price. This is the type of trading you want to get away from. My method always gets you in at wholesale prices and will offer you the best risk reward possible. Enough said, if I need to explain this point further let me know.

Taking the trade at the pattern completion point blindly on a limit order is still a high probability trade. We are talking these patterns depending on the one and identified properly offesr a 70 – 80% success rate tested and true but I like to have a stronger case for entry if possible. So I employ other elements and apply them to my PRZ to zero in on that elusive top or bottom. I have discussed these already and don’t feel the need to explain them again unless needed. This combination of element orconfluence usually gets me in within 20 pips of a top or bottom and most of the time it’s even better as you have seen.

Next post I will drill down further.

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Post# 260 Dec 30, 2012 9:43am


Traders that understand price action have the best advantage in the PRZ. The PRZ is an area of extreme exhaustion and price should behave as such in this zone. Price can and often show acceleration going towards a predetermined PRZ but should not continue with strength into the PRZ. Price should show evidence of slowing down as it gets closer to the PRZ much like you would at an area of S/R.

If your comfort level is with the higher timeframes then you would want to drop down to a lower timeframe to get a more detailed view of price behavior in the PRZ.

I will tell you price action hates the PRZ and does not hang out for long so decisions often have to be made quickly. Do not over analyze your PRZ find the reversal pattern you feel most comfortable with and take action. Once price moves away it’s too late and late entries are not a great idea because it exposes you to more risk. In the next post I will show you the PRZ of the Gartley we were looking at on Friday. I’m sure there will be questions on this so based on those questions I will see how best to proceed.

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Post# 261 Dec 30, 2012 10:20am

The PRZ of the Gartley we were looking at on a 5 min timeframe to zero in on price and get the best wholesale entry possible. This is my approach to the PRZ and most of these scenarios are typically the same learn to read price and it will tell you what it wants to do. Let me know what needs clarification.

After we get through this we will get into the patterns.

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Post# 265 Dec 30, 2012 11:42am


GM Bary,

Great question, taking the trade anywhere in the PRZ offers a great wholesale priced entry as you can see in the chart I provided taking the trade when the pattern completed was good enough. The reason for me to take a different approach is that I always try to find the best possible price. As you become more familiar with the PRZ and skills shartpen you will start to see where in your PRZ price is likely to test and the best area to zero in further in the PRZ that was the oval I drew. Also my price action experience told me that perhaps price was not done moving lower and the other areas of confluence were probably going to be tested. This was evident by the slowing down of price into the PRZ at the pattern complettion but also not strong commitment to buy at that level just yet and the ABCD of the Gartley pattern had not yet completed. In my process of building the case price was hinting what it could still push a bit lower.

This type of fine tuning will come with time. Antwhere in the PRZ offers a great entry we were within the low by 14 pips how's that for accuracy and the stop is never within the PRZ but we will get to that. Does this make sense?

My entry was only 4 pips better no big deal in this case.

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Post# 378 Jan 1, 2013 8:33pm


Jason,

The figures are not rigid but the rules are. We also have to remember that price will vary slightly between broker and price will not always come to anarea to the pip. In your analysis you will have to determine what is acceptable for you. I will give you some examples.

On a 1H Chart

If price comes to with in 5 pips to a fib target then I will accept as valid.

On a 15M Chart

If price comes to within 3 pips of a fib target I will accept as valid

You must be careful or you will start to lose the intergrity of the patterns. 5 pips on a 1 H chart is not that big a deal but the same 5 pips on a 5 M chart is.


http://www.forexfactory.com/showthre...26#post6332226

Post# 394 Jan 1, 2013 9:57pm


Anytime, they are always calculated on the high and low. The tails are even more important then the close from a price action perspective.

That is a good questio, I'm not sure since I have not tested but an educated guess would say max 10 pips on the daily and weekly and 5 pips on the H3.

If this is your chosen timeframe take the time to do some testing to validate. Remember we trade what se see not what we think.

Also, if it cannot be measured, varifiable and reproducible then it cannot be tested and it has no place in our trade plan.

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Post# 488 Jan 2, 2013 4:27pm (43 hr ago)

Well the moment we have been waiting for, patterns. Today I will introduce you to the ABCD pattern. This is the pattern that occurs the most and is in one way or another associated with the second half of the other patterns we trade.

I want to also make a statement in general about patterns. You have to get to know these patterns to the point that your eyes can spot them automatically. Don’t worry, you don’t have to go bonkers training your eyes to spot them. With time this will come on its own. You also have to make the patterns your own.The generic forms of these patterns are a guide and their correction ranges are too lenient. So I have taken them and made them my own by maximizing their efficiency through extensive manual back testing to find the best possible combination of ratios that offered the tightest possible PRZ. These rules I’m about to share with you are my own. If they work for you great if they don’tthen feel free to make them your own.

What are the pros and cons to how I have made them my own?

First the cons:

By optimizing the ratios you will have less valid patterns to trade. This means fewer trades and a painful trading session LOL.

The pros:

Better organized patterns with higher probability of success. These rules offer much better risk/reward as it identifies very tight PRZ. You also know immediately when a pattern is no longer valid and you know exactly what you are trading and at what point your analysis is incorrect.



Attached are the rules of engagement to the ABCD Pattern. In the next posts I will present some of these so you can see some chart examples. We will also cover aggressive entries after we become more familiar with the basic pattern. This is directly from my trade plan.


http://www.forexfactory.com/showthre...42#post6334142

Post# 490 Jan 2, 2013 4:59pm (42 hr ago)

Here is an example of a recent ABCD


http://www.forexfactory.com/showthre...41#post6335741

Post# 518 Jan 3, 2013 8:26am (27 hr ago)


I can see what you were trying to do as far as identifying the pattern your ratios are not entirely wrong however you are against order flow. ABCD patterns are trend continuation patterns and although can form against order flow they have a higher probability of success if we swim with the current. Nice attempt.

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Post# 541 Jan 3, 2013 5:09pm (18 hr ago)

We trade what we see so news is not an issue. Taking aggressive entries at point C is fine but should be in tune with order flow. Also, take the time to step back from the pattern to see if other harmonic elements confirm your analysis with confluence. I made a video as it makes it easier and let me know if I need to touch any points further.

Entering below the 50% might help you confirm some bearish action as you are trading below the pivot of the swing but also decreases your risk reward and places you in a retail trading category. This is why we consider it and agressive C buy or sell. I will get more into this.

My deepest apologies in the video I said foxylady and it's foxybunny. My bad! also the quality is not the best. go straight to youtube and search dcastfx see if its any better.

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Post# 582 Jan 4, 2013 9:19am (2 hr 34 min ago)

I rather wait till we get to that pattern but since I know there are experienced harmonic traders here I can post my visual quick reference guide which has the ranges per my rules. We will cove each pattern in detail and post rules for each like the ABCD.

http://www.forexfactory.com/showthre...94#post6338994

Post# 583 Jan 4, 2013 9:21am (2 hr 33 min ago)

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Post# 841 Jan 8, 2013 10:50am (2 hr 19 min ago)


There is no doubt this type of price action make things a bit more challenging. There doesn't have to be an all time high and an all time low as you can keep looking back to find more. I have mentioned the most relevant to price. Ideally this swing would jump out at you and tell you here I am and sometimes it does that and sometime we have to identify it. We achieve this with confluence and pattern validation. Look at the chart and let me know if you understand or need further explanation. Good question.

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Post# 858 Jan 8, 2013 1:06pm (9 min ago)

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Post# 825 Jan 8, 2013 9:24am (3 hr ago)


You are absolutely correct. I always say take a step back and make sure you did not miss something and in examining the trade from yesterday I did failed to do just that. This caused us to trade the wrong pattern but adds value to the statement "Always take a step back". The correct pattern was a Bat which was beautiful. Unfortunately I was not up to take advantage of this trade setup. This trade would be at BE with at lease 60 green pips. Oh well this will happen and on to the next.

This is a critical point in a traders career. How do you handle losses? 1 loss, 2 losses, 3 losses? This is where the demons come to destroy you and where traders become self destructive. How do I handle losses? I don't care as long as I followed my rules. I have tested my rules and in the long run have proven to be profitable. You have to learn to accept losses, its a part of the business. You will even string a few this is fine too. This is where a proper money management plan comes in and helps you absorb the drawdown to help you fight another day.

I will introduce two money management systems for you to look at. I use the smooth ration system. This is a critical tool to any trader and if you don't have a money management plan you are a few trades aways from blowing up an account. Please, please, please develop one or use one of these.

You will find them insightful! take the time to read them the information is priceless!

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Post# 1,005 Jan 9, 2013 8:57pm (7 hr ago)

Yes Cypher I haven't added it yet but I trade them. this is what it looks like

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Post# 1,035 Jan 10, 2013 9:21am (1 hr 33 min ago)

Well Before I get to the many posts on the thread I wanted to discuss the Holy Grail.

Trading is much many more components and most traders especially new ones think it does. There are three main components each of which are broken down farther. We are not going to get into these subcomponents but I will mention the three main one because everyone should know this. They are:

1. A trade plan with positive expectancy.

2. A money management plan.

3. Discipline

As important as these are as a whole, this is not the Holy Grail IMHO. These components together are a professional trader’s DNA. What keeps you profitable is what you can call your Holy Grail.

I have found mine and it has to do with what keeps me profitable. I have thought about this long and hard and came up with my interpretation of the elusive Holy Grail which I summarized into a quote.

If you want to find your Holy Grail your search starts from within. None of the components above on their own can make you a trader and all three have the possibility to make you profitable, but to be consistently profitable and maintain profitability is the Holy Grail.

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Post# 1,186 Jan 11, 2013 12:53pm

Here is the video of the swing id for GBPJPY 5M.

Post questions comments concerns. Thanks.

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Post# 1,225 Jan 12, 2013 1:05pm

Sounds like a plan I will work on one but in the mean time here is the same chart from the video GBPJPY 5M with examples of orderflow and aggressive entries. I think it does a nice job and will help you until I can make the video. Let me know if this is clear enough so I don't make a video that is not needed. Thanks for your question.

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http://www.forexfactory.com/showthre...34#post6363634

Post# 1,318 Jan 14, 2013 1:02pm

Okay Traders you asked for my session and here it is. I had to rush through it a bit because these videos have time limits but hopefully you get to see the approach. The shorter timeframes are busy and lots of fun. I entered my last trade around 11 and I started at 7 so 4 hours of trading. If the video is too rushed or too hard to follow don't worry that is not the focus of the thread. You will get there but we have to take baby steps. I'm glad to see many profitable trades which should help start builing that belief system. Well as with every video posts questions comments and concerns.

[quote=Kilian19;6558653]

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Post# 1,410 Jan 15, 2013 10:23am

This Bat does not fall within my ROE but it does fall under the generic pattern. As this pattern played out cause the PRZ to be too wide for my taste. I appears it has worked out any way but where would you have entered and the best area of confluence is where price reversed. This was outside of the patterns PRZ. So if you entered in the PRZ you went through some pain before experiencing what is not pleasure.

Can you see even if the pattern is invalidated per my ROE there were many other harmonic considerations and a case for entry in the area I identified as much better confluence on my chart. There was little to no confluence in the Bat's PRZ.