How to Determine Trade Entries and Stops in Harmonic Pattern Trading – Presentation #6

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Most of the traders who use the Harmonic pattern for trading expect that the pattern would reverse as well as make an attempt to trade them within the reversal area. However, during the process they end up placing counter or contrarian trades. Before entering a trade, traders must seek price action reversal along with change in reversal trend.

When it comes to trade entries using the Harmonic patterns, most of them happen around the ‘D’ level inside the trend reversal zone. In bullish patterns, this could either be a Sell or a Buy. Typically, ‘D’ can be identified through a meeting of retracements, projections as well as extensions of previous swings or legs that are universally referred to as the ‘reversal area/zone’.

Thus, when the prices begin to approach this particular zone, it is a great opportunity for trade but not the signal for placing a trade. Before entering the trade, traders must take numerous other important factors into consideration such as the existing volatility, trend underlying, pattern’s volume structure as well as internal market factors etc. If there is a valid pattern reversal and the trend underlying as well as the internal market factors agree with it, then the traders can calculate the entry levels on the basis volatility, pricing ranges as well as other factors.

On the other hand, the stop can be place either below or above the final or the last pivot point. It must be noted that in the case of 5 as well as 4 point Harmonic patterns, the stop is place below the ‘D’ for bullish patterns and above ‘D’ when there are bearish patterns.

Target Zones

Apart from trade entries as well as stops, traders must also compute the target zones when using the Harmonic chart patterns. These are calculated on the basis of extensions, projections and retracements of corrective/impulsive swings along with the Fib ratios from the pattern structure’s action point. Traders must know that within the Harmonic chart patterns, a target zone is determined from the standpoint of probability rather than the certainty standpoint. In order to trade the Harmonic pattern successfully, traders need to have solid risk and money management strategies as well as in-depth knowledge about the pattern.

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