Why didn't the USDSDG drop?

I have a bearish butterfly on the daily of this pair and also the stoch that shows overbought.

It is now monday and it didn't gap down during the week end in fact it's still going up now?

Does this mean the butterfly pattern and the stoch doesn't work?

Keep in mind that indicators aren't driving the price ... They are just telling you what happened ... not what will happen.

Hi Forex_Fairy,

Correct me if i'm wrong, but harmonic pattern are used in order to spot ahead of time potential end of moves, and also to place targets on already completed figures.

From the look of your graph, you are clearly in this second situation where you are looking for a potential short target. But... Have you given the thought that maybe what you called D isn't the end of the leg. And it is possible that price action can go through and beyond the Potential Reversal Zone given by butterfly pattern.

Should the pattern you've drawn on your graph be correct, here are the data :

1. XA = 0.07888
2. AB should be 78.6% of XA => AB should be equal to 0.062. On your graph, AB is barely 61.8% of XA <= Already bearish butterfly pattern seems compromised on this move...
3. BC should be between 38.2% and 88.6% of AB. This part is respected on your graph, so moving onto the next point
4. CD
   1. should be between 1.618 and 2.618 of BC. This zone was broken above as the maximum allowed value should have been 1.41925

   
   

5. AD
   1. should also be between 1.27 and 1.618 of XA. In our case, this would have limited the PRZ to a small zone comprised between 1.415 and 1.419

   
   

While i agree that harmonic pattern are fine to trade with, you have to use extreme caution when dealing with PRZ as without a correct use of them, harmonic trading will burn your account.

And i might also add that given the values shown on your stoch indic, i wouldn't be looking at a short on this pair. The kind of value displayed right now are quite similar to the values exhibited during the long move prior to your X point.

The pattern is still valid, but it doesn't need to turn on a dime.
it could go as high as the top of the rectangle and still valid, but if beyond that,
all bets are off.

Thanks for the inputs guys. It's now dropping off pt D and has been doing it for a while but still pretty slow.

to AKH12851 thanks for input i'm new to harmonic trading.

No - it means only that they didn't work on that occasion.

What matters, when making trading decisions on the basis of indicators, is the overall proportion of the time that they're indicative of something useful to you. That's never going to be close to 100%. But their proponents argue that if it's more than 50% of the time, then they're worthwhile.

Bear in mind that most of the examples of charts you'll ever see, in books, on videos, in courses and in forums, "demonstrating" how indicators have any predictive value, have typically been hand-picked with hindsight precisely because that's exactly what they appear to demonstrate, and that there were also many, many more that didn't demonstrate it at all (of which you seem to have posted one example).

It's called "selection bias".

Charts purporting to "demonstrate" that the butterfly pattern and the stochastic indicator (or any other indicators or patterns) have price-predictive value are typically demonstrating only that it's possible, with the benefit of hindsight, to select charts which appear to demonstrate that.

That's not to say that they don't "work", of course; but the key point is that it's not to say that they do, either.

yeah that's right but you see the problem is during the teaching of these indicators they never say that. They never mention that selection bias at all. They write it as if you're guaranteed for price to move like that if you see that pattern.

They cover their ass but putting in some disclaimer like FX is high risk etc etc so you cannot blame them.

Forex_fairy,

1. Why should a butterfly drawn over price data be indicative of future price direction?

2. If some traders profit off such drawings while other traders fail, don't you think there is an underlying reason that goes beyond the drawing itself?

Which is why, in my humble opinion (which won't seem that humble right this minute ) it's best to stay away from all that fancy BS and just focus on what price is telling us - buyers and sellers.

On D1 chart, price is going up. Big buying. Obviously at some point this pair will pull back but personally I see no evidence of that on D1 at the moment.



On H4 if I was really sure that the harmonic butterfly and stochastic business meant that this pair was now going to drop (bearing in mind this is obviously more kind of "trading what we feel" rather than "what we see") then I might give some credence to the H4 supply (sellers) that came in and which has indeed forced the price down. But, given that this pair is in a big D1 uptrend I personally (with the current specific H4 chart situation) would need to see further evidence of selling in the form of a retest of that supply followed by some bearish PA for confirmation. Hope this helps.

yeah i guess so but the question is what would that be?

You see that's the problem. This butterfly, gartley patterns are under the term harmonics and harmonic trading is a very huge subject. You can find hours of videos say on YT. You can find many books on this but when you learn this well they don't have the section that says hey not every price pattern that fits into the butterfly, gartley patterns will turn out like that and that we handpicked the charts that were going to follow the rules we set as mentioned earlier by another poster or they try to force the pattern. They also won't talk about any underlying reason.

In my opinion, these are the two things that all successful traders have in common:

- Each discovered a method or system that suited their beliefs about the market.
- Each managed risk well enough to keep themselves in the game.

Also in my opinion, harmonic patterns only suit people who believe that there is a hidden order to the universe. Same with Fibonacci and Elliot Wave.

Hi forex_fairy,

One ideal thing when trading harmonic pattern would be to have different types of money management on the same pattern.

I mean, in the case of what you thought was a butterfly pattern :

1. you could have entered a "probe" trade at what seemed like the top at the moment, with a very tight SL (either what you think is the top, or the maximum allowed value for the harmonic pattern to still be valid). Since this trade would be placed on tight SL, it is possible to use considerable leverage on it without sacrificing too much in case of SL hit
2. you could have also placed a limit order at the exit of the PRZ (Potential Reversal Zone) with SL at the previous top. The setting of this SL would be quite troublesome as :
   1. If using the other side of PRZ as SL, this place might be too far for the trade to respect a decent R:R
   2. If using previous top (doesn't matter how you place the previous top) for SL, we are in another situation. When price break out of PRZ in the expected direction, usually, the breaking of the zone isn't the beginning of the move. As a consequence, you are risking to see prices go against you during a retracement of the move.

   
   
   

3. It is also possible to place limit/stop orders at specific places inside the PRZ (fibo ratio for example). Placing SL faces you with the same challenge as previous point

Another thing is : The % of respected pattern is greater when the pattern happened on a previous resistance/support. So avoid trading patterns that happen "in the blue"

These are just ideas for harmonic trading

Have fun with harmonic patterns. There are lots of them, and even though i find some better than others, choice is yours to make