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Ratios & Harmonics: a Different Way to Trade

  • #20,341
  • Aug 22, 2016 9:10am Aug 22, 2016 9:10am
Quoting crixus
{quote} Nice trade, when price reaches a bottom or top i always pay attention to the last pivot structure before the bottom or top if it is near this level then price often retests it and forms what is called a reversal head and shoulder pattern. {image} Here is what happened on the ES at the same time... I went short at a local resistance (Red rectangle) but reversed as i saw the strength of buyers and the potential to trap the short side. {image}
When I entered the trade I wanted to see price come up and close above the the blue close at the top of the orange box (prior swing high). It wasn't able to do that so the next area I was watching was that lower pivot or the left shoulder. Once price respected it again and started to move up I remained confident. And once we closed above that pivot high I was very confident price was headed higher.

So much agreed, very beneficial to be mindful of local swing pivots.
  • #20,342
  • Aug 22, 2016 9:20am Aug 22, 2016 9:20am
YM

Lol, thought this would happen.

A squeeze was part of the reason I took the trade today.

Price was looking like it could turn around and dump at any point and being at my quota I figured I'd take profit.

Hindsight showing me I should have stayed in but overall can't be too upset.

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  • #20,343
  • Aug 23, 2016 9:29am Aug 23, 2016 9:29am
Nothing for me yet today, might be a no-trade day.

I looked at possibly making a few entries but held off just because I don't feel comfortable with the price action today.

I want to wait for pullbacks that I think will give me good opportunities to hit 20pts. So far I haven't really seen any with the ranges today.

I suppose I could have scalped to hit my quota but with price action between supply / demand zones I don't feel that scalping would have provided a beneficial r:r.

Chart shows entries I was considering; 1 long, 2 shorts.

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  • #20,344
  • Aug 23, 2016 12:12pm Aug 23, 2016 12:12pm
Quoting karasinga
Hi to all harmonic traders and my teacher mr.pip. First is to thank Mr pip for the good work he is doing by teaching us his method. To be honest to you Mr pip, I have learnt a lot and believe by the time i catch with the remaining pages I shall have moved out of the woods. @ the time of writing I am on 500 pg. I have been reading and implementing your way on the sidelines and now want to show you my work for guidance. I am new to forex but not new to financial market. have been demoing stock market in my country guided by elliott wave principles...
Hello Karasinga,

I started to study forex guided by Elliot Waves, but I felt that something was missing and I found this amazing thread in January.
It was structure analysis and orderflow for me.

Mr.Pip started again from this post : http://www.forexfactory.com/showthread.php?p=8720113#post8720113
If you are reading the thread from the beginning then you will read it. It begins in page 781

Good luck,
Gaston
  • #20,345
  • Aug 24, 2016 2:51am Aug 24, 2016 2:51am
Hi guys!!
I 'd like a little help on structure analysis..
my question is on the chart
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  • #20,346
  • Aug 24, 2016 7:15am Aug 24, 2016 7:15am
Quoting GnG
Hi guys!! I 'd like a little help on structure analysis.. my question is on the chart{image}
I'm attaching an image.

The yellow lines are your boundaries. Once price starts to correct you watch those boundaries for either a NSH or a NSL.

In your example price had put in a complex correction. Your A leg did not produce a NSH but your B leg did. Even though swing A did not lead to a NSH, you would use that swing to determine an order flow change because it is the lowest swing point that started the move to the NSH.
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  • #20,347
  • Aug 24, 2016 9:01am Aug 24, 2016 9:01am
YM

Chopping around the open = hands off
  • #20,348
  • Aug 24, 2016 10:10am Aug 24, 2016 10:10am
Quoting jmezz
YM Chopping around the open = hands off
thank you for your answer jmezz,

In other words, the structure level 2(see the chart) is not so important as the structure level 1,because the move ABC is a complex correction.So we can ignore the BC move (since point B did not produce a NSH)and assume that the ''real'' move was the AD (point D produced a NSH).
..and in a potential reverse, when we see the break of level 1 we should be more concerned that the price will move down because level 1 is more important .

Do i get it right??
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  • #20,349
  • Aug 24, 2016 12:14pm Aug 24, 2016 12:14pm
YM +32

Notes on chart.

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  • #20,350
  • Aug 24, 2016 1:26pm Aug 24, 2016 1:26pm
Quoting GnG
{quote} thank you for your answer jmezz, In other words, the structure level 2(see the chart) is not so important as the structure level 1,because the move ABC is a complex correction.So we can ignore the BC move (since point B did not produce a NSH)and assume that the ''real'' move was the AD (point D produced a NSH). ..and in a potential reverse, when we see the break of level 1 we should be more concerned that the price will move down because level 1 is more important . Do i get it right??{image}
Basically, yes.

I will try to explain a little better.

You have your main order flow that you trade which I refer to as the long term order flow, but also there is short term order flow to go along with your long term order flow.

Typically you'd follow your long term order flow but you can also look to the short term order flow to give you clues about price action. I will warn you that trying to do this sometimes leads to becoming much more confused. It's easy to lose sight of the order flow you are following and get 'lost in the swings.' So if you find that it confuses you trying to do that then I'd just go back to monitoring the main order flow that you trade.

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First image: You see on your main order flow price made a NSH. I've numbered the swings on the short term order flow in red 1-5. Explanation below.

(1) Price then pulled back and tried to continue upwards.
(2) Price got rejected and trades back down.
(3) Price trades below the swing low at (1). This is when you knew you were in a complex correction.
At this time, the expectation is still for a NSH as price has not closed beneath the lower yellow line.
(4) Price rallies up and takes out the swing high at (2) but fails to create a NSH. We are still in a complex correction and the expectation is still a NSH (close above the upper yellow line) although the expectation is now suspect as price is not exhibiting very strong behavior.
(5) Price trades back down before reversing back upwards and eventually making the NSH that was expected.

So how can the short term be utilized in order to give clues on the long term? You treat the short term just like you would the long term and hold it to the same rules and expectations as you normally would.

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Second image: I've replaced the red 1-5 with our regular order flow terminology. I am defining the long term order flow with capitals (NSH, LH) and defining the short term order flow with lower case (lh, hl, nsh)

Assuming you entered on the weak nsl at 21:30, you would be looking for price to make a nsh on the short term which would be a close above the prior lh (cyan line). Price achieves this.

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Third image:

Now what do the rules say? After an order flow change you could expect to see a retracement. If I'm in this trade and price has just created the nsl on the short term then I am wanting to either see it continue upwards to fulfill the NSH on the long term or per the rules, I want to see a retracement that holds above the cyan line at the nsl that we made at 21:30. Also I'm looking for structure around the area in order for price to respect if it comes back down, which we have with the blue demand zone.

If price comes down and trades back below the supply zone and cyan line then you know that your expectation for the NSH on the long term has weakened and your trade is probably not going to work out.

However what happens is that you get your retracement, price respects your demand zone and then continues on to make your NSH on the long term.

Now using your screenshot, when you move on to the next retracement you would most definitely use support level 1 as your boundary for your main order flow. However you could use support level 2 for clues. So there is still some importance to be had with support level 2 but support level 1 is the main level you want to watch for an order flow change.

I hope this makes sense. It can be confusing and there have been plenty of times and continue to be times where I get lost in swings but I find that if I catch myself starting to get lost then I just avoid it altogether because trying to play our patterns here should not take a lot of deciphering. Our plays should be fairly cut and dry and I'm realizing that you should be able to just glance at the price action and within seconds determine if it looks like a favorable setup. IMO if you have to sit there and analyze the shit out of everything with the setup then you should not take it.

Again, if you start getting confused trying to use the very short term order flow then just avoid it and focus on the main flow.

I may have left some details out by accident so if I remember I'll go ahead and edit this post. I am pretty sure I gave an explanation on this in a prior post of mine so I'm going to search for that one and I'll link it here if helps explain a little better.

Edit - Mistake in my screens, the cyan 'LH' should read 'HL.'
Edit 2- Here is the link to my earlier post on this - http://www.forexfactory.com/showthread.php?p=9040768#post9040768
  • #20,351
  • Aug 25, 2016 4:15am Aug 25, 2016 4:15am
Quoting jmezz
{quote} Basically, yes. I will try to explain a little better. You have your main order flow that you trade which I refer to as the long term order flow, but also there is short term order flow to go along with your long term order flow. Typically you'd follow your long term order flow but you can also look to the short term order flow to give you clues about price action. I will warn you that trying to do this sometimes leads to becoming much more confused. It's easy to lose sight of the order flow you are following and get 'lost in the swings.'...

Great post!! I understand 100% your analysis

..to be honest ''complex corrections''are a bit tricky.Maybe i have watched 25 times Damian's video :Complex Corrections Order Flow

let me tell what confuses me..
Apart from the great analysis you made above(NSHs,NSLs,short term,long term etc) Damian had told us that we should be looking for areas of support and resistance and find confluences.In this case (after making your analysis) i am trying to validate the various levels that are formed.
Why??Because in the future if the market decides to came back and retests those levels i want to know which is strong and has a potential to hold..
that's why i am wondering which level is stronger:
1)the one that produced a NSH??(in our example level 2)
2)or the other that didn't??(level 1)
see the chart
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i'm looking forward for your opinion!
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  • #20,352
  • Aug 25, 2016 4:53am Aug 25, 2016 4:53am
Quoting gastonforex
{quote} Hello Karasinga, I started to study forex guided by Elliot Waves, but I felt that something was missing and I found this amazing thread in January. It was structure analysis and orderflow for me. Mr.Pip started again from this post : http://www.forexfactory.com/showthread.php?p=8720113#post8720113 If you are reading the thread from the beginning then you will read it. It begins in page 781 Good luck, Gaston
thanks Gaston for narrowing my study to where Mr pip started it again. It has been a struggle going through the material post by post(but it is worth it). I am already liking weekly lessons.thanks again for confirming we share a background of Elliot wave.
currently studying structure analysis. hope to be guided 
below is what i was looking on yesterday. what went wrong with my analysis. new to forexfactory and still a hassle to post screenshots( taking forever to upload)
thanks again. green pips
https://i.imgur.com/uEl37gt.png
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  • #20,353
  • Aug 25, 2016 6:38am Aug 25, 2016 6:38am
Quoting GnG
{quote} Great post!! I understand 100% your analysis ..to be honest ''complex corrections''are a bit tricky.Maybe i have watched 25 times Damian's video :Complex Corrections Order Flow let me tell what confuses me.. Apart from the great analysis you made above(NSHs,NSLs,short term,long term etc) Damian had told us that we should be looking for areas of support and resistance and find confluences.In this case (after making your analysis) i am trying to validate the various levels that are formed. Why??Because in the future...
Hi GnG
Looking at your chart price drove right through level two down to level one. The fact that price returned to level one two more times would indicate that there were more buyers waiting at level one. Also the two bars were really big bars which touched then immediately retraced half or more of there candle length in my view meaning there were large buy orders waiting there to be filled.
Also the main move started before level one so in my view level two is part of the correction.
I'm still learning so stand to be corrected.
  • #20,354
  • Aug 25, 2016 7:23am Aug 25, 2016 7:23am
Quoting GnG
{quote} Great post!! I understand 100% your analysis ..to be honest ''complex corrections''are a bit tricky.Maybe i have watched 25 times Damian's video :Complex Corrections Order Flow let me tell what confuses me.. Apart from the great analysis you made above(NSHs,NSLs,short term,long term etc) Damian had told us that we should be looking for areas of support and resistance and find confluences.In this case (after making your analysis) i am trying to validate the various levels that are formed. Why??Because in the future...
Essentially you'd like to be mindful of any swing point as price could and most likely will react in some way to each one.

But in my experiences the strongest swing points are the ones which lead to new highs. In your example, Level 1 is the start of the move which lead to the new high (breaking the yellow line to create the NSH). Technically you could say Level 2 is the leg that lead to the NSH, but my experience leads me to believe that there are stronger reactions at the origination of the whole move.

Look what happens if you draw some demand zones. If you felt Level 2 was stronger and decided to play off of it you may have had a bad trade. Price came down and respected Level 1 demand zone. I drew them like this just to illustrate a point. If trying to trade this you may even draw demand zone 1 up a little bit to touch the wicks of Level 2 to lend further validity to the zone.

Also, I'm not sure if you meant that you would be looking to them to take a trade off of. In this example, you have an order flow change with close below the red line. So if price comes back down to these levels I wouldn't be looking to long off of them unless you are aware that this is an aggressive trade and you manage aggressively. You could use harmonic correction (purple) as a guide but just know that odds are stacked against you at this point if you are long.

Using this example, if you are short and are coming upon a demand zone in question then you'd want to go ahead and tighten up any stops or at least pay real close attention to the reaction that price has because it's simply impossible to know beforehand the reaction that price will have (unless you're using an OFA chart which gives you an idea of the supply / demand in the bar). It could explode or it could cut right through it.

Also Damian has said when you see price retracing to look to where the most amount of structure is within the swing that's being retraced. This is something that's helped me out.

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  • #20,355
  • Edited 7:53am Aug 25, 2016 7:40am | Edited 7:53am
Quoting karasinga
{quote} thanks Gaston for narrowing my study to where Mr pip started it again. It has been a struggle going through the material post by post(but it is worth it). I am already liking weekly lessons.thanks again for confirming we share a background of Elliot wave. currently studying structure analysis. hope to be guided below is what i was looking on yesterday. what went wrong with my analysis. new to forexfactory and still a hassle to post screenshots( taking forever to upload) thanks again. green pips https://i.imgur.com/uEl37gt.png...
I don't really think that short was a bad idea. You had the order flow change, the deep pullback to structure, and the rotation.

But what might have been a tell is the way that price rocketed up from your blue line. It was also the 50fib of the whole move. So the strength off of the 50 was a clue maybe a short wouldn't work.

Good to keep in mind where price is in relation to the entire move up.

Also was there a news release around that time? Looks like a couple of those swings were pretty volatile around the time of your short.

In addition, Damian posted that when a NSH or NSL is made in 1 swing that usually it's followed by a deep, complex correction. Regarding the swing that lead to the NSL, it's up to you if you want to consider that little pullback it's own swing or not. If you don't want to take it into account, then expectation was for a deep complex correction. At the time of your short price had only made 1 leg up, so you could have waited for the 2nd leg in which case by the time it stopped it was already approaching a NSH.

Easy to pick this out in hindsight, much harder in real time.
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  • #20,356
  • Edited 10:19am Aug 25, 2016 9:01am | Edited 10:19am
As anyone noticed that when we identify a 1:1 move the second leg quite often fails to complete and will stop at around +/-75%. That is something i have begun to track.

Here is one example on the ES this morning...

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EDIT:
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EDIT II: I have removed some lines and updated what i am seeing thus far

AT 10:33 ET i thought price would reverse to the downside after a triple top. This provided a small scalp. At 10:52 after a local HL we got a good long opportunity there. I'll try to post my footprint chart as a bonus.
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EDIT III: bonus chart showing the footprint for the setup at around 10:52 ET
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  • #20,357
  • Aug 25, 2016 9:16am Aug 25, 2016 9:16am
YM +23

Notes on chart.
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  • #20,358
  • Aug 25, 2016 9:35am Aug 25, 2016 9:35am
Quoting crixus
As anyone noticed that when we identify a 1:1 move the second leg quite often fails to complete and will stop at around +/-75%. That is something i have begun to track. Here is one example on the ES this morning... {image} EDIT: {image}
Yeah there are definitely times where price doesn't hit the 1:1. A lot of these times I notice it's because of the 127ab ext or price falls short of the PRZ and hits another bc ext instead. In hindsight, the 127ab and 161.8bc provided confluence.

I consider these failed patterns and think that maybe price is not as strong in the direction any longer. That said, I notice that sometimes price pulls back and then shoots again hitting the original 1:1 target just like in your edit.
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  • #20,359
  • Aug 25, 2016 9:41am Aug 25, 2016 9:41am
Quoting buzznack
{quote} Hi GnG Looking at your chart price drove right through level two down to level one. The fact that price returned to level one two more times would indicate that there were more buyers waiting at level one. Also the two bars were really big bars which touched then immediately retraced half or more of there candle length in my view meaning there were large buy orders waiting there to be filled. Also the main move started before level one so in my view level two is part of the correction. I'm still learning so stand to be corrected.
Hi buzznack,
i agree,level 1 proved to be stronger than level 2 because of the strong rejection that the price had when returned.But when these levels are formed (real time)you don't have this information. Basically is the information that you would like have (the rejection will be strong or weak when price returns??)

That's why i focused on the formation of a NSH (NSL in case of downtrend) because is the only thing that you have(real time).it is also the projection ,and the momentum as Damian has told.:nerd:
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  • #20,360
  • Aug 25, 2016 9:41am Aug 25, 2016 9:41am
Quoting jmezz
{quote} I don't really think that short was a bad idea. You had the order flow change, the deep pullback to structure, and the rotation. But what might have been a tell is the way that price rocketed up from your blue line. It was also the 50fib of the whole move. So the strength off of the 50 was a clue maybe a short wouldn't work. Good to keep in mind where price is in relation to the entire move up. Also was there a news release around that time? Looks like a couple of those swings were pretty volatile around the time of your short. In addition,...
jmezz, thanks for you reply. forgive my ignorance i am still learning. in your reply you mentioned the expectation was for a deep complex correction and i could have waited for the 2nd leg. so in the event I have an expectation of  deep complex correction, should my entry be on the end of the second leg  and ideally what should be the expectation in terms of structure. thanks again. 
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