Harmonic Patterns

HARMONIC PATTERNS BY AR. DANILO O. DONOR JR. AKA “D. ILLUSTRADER” Facebook: www.fb.com/d.illustrader/

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Contents š  Introduction

š  Deep Crab Pattern

š  Fibonacci Sequence

š  Cypher Pattern

š  Harmonic Trading Ratios

š  BAMM Theory

š  PRZ

š  RSI BAMM

š  AB=CD Pattern

š  Trading Checklist

š  Gartley Pattern

š  Harmonic Trade Management

š  Bat Pattern

š  Elliot Wave Theory Confluence

š  Alternate Bat Pattern š  Butterfly Pattern š  Crab Pattern

Introduction š  Harmonic Trading is a methodology that utilizes the recognition of specific structures that possess distinct and consecutive Fibonacci ratio alignments that quantify and validate harmonic patterns. These patterns calculate the Fibonacci aspects of these price structures to identify highly probable reversal points in the financial markets. š  Trading behavior is defined by the extent of buying and selling and influenced by the fear or greed possessed by the market participants. The collective entity of all buyers and sellers in a particular market follows the same universal principles as other natural phenomena exhibiting cyclical growth behavior. š  The basic understanding required to grasp this theory should not move beyond the simple acceptance that natural growth phenomena can be quantified by relative Fibonacci ratio measurements. š  It was discovered by Scott Carney and published books entitled The Harmonic Trader, Harmonic Trader Vol. 1 and 2 since 1998.

Fibonacci Sequence

š  Fibonacci numbers are based upon the Fibonacci sequence discovered by Leonardo de Fibonacci de Pisa (b. 1170–d. 1240). š  The mathematical problem: If a newborn pair of rabbits requires one month to mature and at the end of the second month and every month thereafter reproduces itself, how many pairs will one have at the end of “n” months?

Fibonacci Sequence The answer is: un This answer is based upon the equation: un +1 = un + un -1 Although this equation might seem complex, it is actually quite simple. The sequence of the Fibonacci numbers is as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89,144, 233, 377… ∞ (infinity) (0+1=1)…(1+1=2)…(1+2=3)…(2+3=5)…(3+5=8)…(5+8=13)…8+13=21)…13+21=34)…(21+34=55)...(34+55=89) 34/55 = 0.618181 ~ 0.618 55/34 = 1.676471 ~ 1.618

55/89 = 0.617978 ~ 0.618 89/55 = 1.618182 ~ 1.618

In the realm of Mathematics, the 1.618 is known as the golden ratio or Phi. The inverse (1/1.618) of Phi is 0.618, sometimes referred to as “little Phi.” The 1.618 ratio is also commonly referred as the golden number or the golden mean. The number is denoted by the Greek letter Phi (ϕ). The inverse of the 1.618 (phi) sometimes is referred to as the golden ratio or golden proportion (0.618), and it is recognized by a small “p.”

Fibonacci Sequence

Harmonic Trading Ratios

Primary Retracements

Primary Derived Retracements

Secondary Retracements

Primary Projection

Primary Derived Projection

Secondary Derived Projection

Extreme Secondary Derived Projections

Potential Reversal Zone (PRZ)

š  By calculating the various Fibonacci aspects of a specific price structure, harmonic patterns can indicate a specific area to examine for potential turning points in price action. š  A PRZ represents the critical areas where the flow of buying and selling is potentially changing. š  These harmonic zones attempt to identify the price levels where imbalanced overbought and oversold situations are reversing—at a minimum—back to their respective equilibrium level.

The AB=CD Pattern

The AB=CD Pattern

The AB=CD Pattern

Alternate AB=CD Pattern

Gartley Pattern

Gartley Pattern

Gartley Pattern

Gartley Pattern

Gartley Pattern

Bat Pattern

Bat Pattern

Bat Pattern

Alternate Bat Pattern

Butterfly Pattern

Butterfly Pattern

Butterfly Pattern

Crab Pattern

Deep Crab Pattern

Deep Crab Pattern

Deep Crab Pattern

Cypher Pattern

Cypher Pattern

Cypher Pattern

BAMM (Bat Action Magnet Move) Theory

RSI BAMM

RSI BAMM

RSI BAMM

RSI BAMM

Trading Checklist š  1. Is there a pattern? 2. What is it? 3. Is there an AB=CD? 4. Where does it complete? 5. Are there three or more numbers converging in the PRZ? 6. What are they? 7. What are the time cycles (symmetry) suggesting? 8. Are there any warning signs? 9. At what point is the PRZ no longer valid? (Stop Loss) 10. How much must I risk? Am I willing to risk it?

Harmonic Trade Management š  PRZ (Potential Reversal Zone) - is a specific area where harmonic patterns complete and Fibonacci projections converge. š  The Initial Profit Objective (IPO) - represents the first area to consider taking profits for the position. Most frequently, it is either a 38.2% or 61.8% retracement from the extreme points of the pattern. š  Profit Protection Zone (PPZ) - is a predetermined level beyond the execution point after a small profit has been achieved. š  The Stop Loss Zone (SLZ) - is the area beyond the Potential Reversal Zone that defines an invalid setup. š  The 0.382 Trailing Stop - is measured from the reversal point to the reversal extreme—high (bullish setup) or low (bearish setup).

Harmonic Trade Management Model

Harmonic Trade Management Model

Elliot Wave Theory Confluence

Elliot Wave Theory Confluence

References:

š  Carney, Scott M. The Harmonic Trader. Nevada: HarmonicTrader.com, LLC, 1999. š  Carney, Scott M. Harmonic Trading: Volume One. Upper Saddle River, NJ: FT Press, 2010.

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