Harmonic Dance

I will be starting a trade journal to document all my trades as i learn how to use harmonics to trade. Im not good at it yet, but going live with a small account will make me document all my reasons so i dont rat myself out for losing $$ for nothing! And i can also improve. Starting tomorrow i will document my trades, each day, every day. My late new years commitment.



Collection of Resources:
Here i will collect some resources on harmonic trading that i have found useful.

Book
Harmonic Trading, Volume One by Scott Carney

Online
Mr Pips Threads (a trader who trades for a living using harmonics):
http://www.forexfactory.com/showthread.php?t=402253
Mr Pips Charts (as of 1/24/2013) (some charts that mr pip have posted, including some of his trades):
Notice the post number is in the pdf above each image. Study why he made the drawings he did on the charts.

I will post PRZs that i drew and also trades.

The trades will have entry price, stop loss (SL), take profit (TP), and break even (BE) levels marked on the chart.

PRZs are simply areas of confluence that i do not trade, because i do not have rules for them. Also if i hesitated to pull the trigger i might not include the entry price, etc.

PRZs and trade PRZs will have the reason on the chart. They will have fibs drawn on them.

A small dot will mark the beginning trade time, and i will post the times i traded.

Times are in CST.

1/21/2012

Summary
Pips gained: 0
Net Gain: -0.1%
Trades: 1
Trading Time: 10:30 - 11:30 CST

Synopsis
So frustrating! I put my sl to 1 pip because I was looking at the sl level of a previous trade that didn't execute. Arg! And such a beautiful RR ratio on that large butterfly and gartley combination! And i missed all the other trades because I hesitated to pull the trigger.

1/21/2012 Charts



This was an aggressive ABCD that i missed. Notice that the ABCD sell didn't trigger because price has to close in the prz, or close near the prz and show a rejection candle. (this isnt a rule yet, but i might make it). This trade (i didn't show sl/tp) wouldve worked out nicely.



A large gartley, nested small butterfly pattern. Would've worked out nice if i traded the large gartley or small butterfly, and wow, i set the sl to 1 pip by accident. oh well. next one.



An aggressive ABC sell, hesitated and didn't pull the trigger. Would've worked. The ABCD went right into the 61.8% take profit level of the gartley. The ABCD buy would've resulted in a small loss. I wonder if the ABCD order should've been invalidated because it stalled between the c and d point alot. hmmm..... possible rule in the future, idk. On the other hand, the large gartley also stalled, but it was large and was expected to stall.

1/22/2013

Summary:
Pips gained: -21
Net Gain: -2.2%
Trades: 5
Winning Trades: 1
Losing Trades: 4
Trading Time: 10:30 - 11:30 CST

Synopsis:
Not all PRZs are valid! And I missed some, of course the ones that were profitable

1/22/2013

Trades

Smaller harmonic going into 61.8% zone. Buy. Loss. The interesting thing is that even though there was a smaller ab= cd going into the 61.8 zone, there was a larger abcd going down below that zone.



A bunch of fib extensions converging, plus the offset impulse. It Worked. but! i did the tp wrong, it should've been the 161.8 extension of the drop. Since it was against orderflow, i moved to breakeven once it hit the bottom that it broke. and it worked out!



K, dont comment . I saw the price stalling. and i was like, i want a prz to explain that so i can buy since it looks like its in positive orderflow (broke that low on the other trade!@). So i took a fib retracement, found it was at 38.2 (that level should've been resistance, cant use retracements downward for support). And then i took a fib retracement the other way, and guess what, found it was at 61.8! must be a prz next


K, i wanted a prz to go up. so i took a fib extension and retracement, found two przs. perhaps a warning that it wouldn't work was the two bars that had long legs in opposite direction when it met the prz. I don't know, did i define this prz right?


K, final trade.
ABCD, but it wasnt off of a major swing. I feel that when the market is slowing down those sorts of 'abcd' will show all the time, so its not worth it.


PRZs

This prz was never reached. And, if i had been careful, i would've seen a prz that it was stalling at below. When would this prz be invalidated?

It below through this prz, actually it stalled right above it. It was a potential gartley.

1/22/2013

And my favorite part. PRZs that would've worked.

1/23/2013

Summary:

Trades: 1
Trades Won: 0
Trades Lost: 1
Net Loss: -0.1%
Trading Time: 9:30 - 10:30 CST

Synopsis
When you have really big drops, you should wait for it to atleast stall a bit before entering. Also, you should use bigger swings to define the prz for larger drops. but you have to be really careful to use the correct swing length to define it. I would like to see how the swing length i used was valid (i.e. it worked anyways) while the other one didn't).

1/23/2013

Trades
I entered about midway, and got stopped out when it spiked down, for 20 pips. For big drops, i really like to see a swing line up with the endpoint of the drop, which didnt happen. Here, i also used a puny swing to try to define the prz for a rather large drop. Probably not a good idea. On the other hand, i did line it up with the extension of a large swing (but i think i used the wrong swing anyways, it would've still resulted in the same approximate prz though)




PRZ
Here, I used the large swing to do a fib extension, which is good. But the swing i used didn't work, it extended far below the prz anyways. So nothing got triggered, i should've used the correct swing (and i need to define correct), see analysis section.



This prz never got triggered, it stalled right before it entered it, so it was invalid for me, because often it stalls before the prz and then shoots through it. Sometimes it bounces back down, but I dont have rules for when it stalls right before the prz, and entering the prz was my expectation, so i didn't enter.

This one i defined just in case it went down. It was invalid after it spiked up above the point i used for my 0% mark for my extension. It was also invalid because i didn't use a main or dominant swing.

1/23/2013

PRZs that would've worked
Using the large swing and the extension shown would've worked if i took it right when it spiked into it. Maybe i can allow spikes if it stalled right before it.

1/23/2013
Analysis

I would like to analyze the prz that worked. I actually defined a prz using the larger swing right before the swing that worked. Is there a justification for using the swing that worked?

See here again for the prz that worked.


First, I was thinking of doing something along the lines of below. The small swing should go in the little hump in the middle, but i was debating whether it should go on the humongous swing up to the right. Im not sure. But lets leave that behind.



Now, we will try to approaches. First, we will try to define if price reacted to the prz created by the large swing or reacted to the prz created by the small swing. We will find the prz is approximately the same and price reacted there dramatically. See below.




Finally, we will try this approach. Which swing, the big or small, is harmonically related to the most important swings in the near past? If both of them are related, then we have no justification to use the small swing . But if the small swing is the only one related, we have our justification! Plus, its nice that the large swing in the second image in this post actually barely pokes below the prz that worked (the one we created with the small swing).

Here are the vertical distances that are most important, with the big and small swing vertical distances to the far left.


Here is the big lines compared to the lengths of the other lines. not too convincing.


Here is the small lines compared to the length of the other lines. Notice the big and small swing arent really harmonically related, while the other swings beautifully line up! Nice, i think we have a potential justification!




Discussion
One important part of harmonic theory states that waves travel in vertical distances that are related via fibonacci ratios. But, on a timeframe, i do believe that the relevant vertial distances can change. In other words, lengths of swings in the past will become irrelevant. So to determine if they're relevant, you can see if they're related via the fib ratios to the current price action swings. This could possibly validate our analysis and justify which swing in the far past to use in our confluence measurements, if we need to use such a swing (usually only when price is really dropping fast).

1/24/2013

Summary:

Trades: 1
Trades Won: 0
Trades Lost: 1
Net Gain: -0.1%
Trading Time: 9:30 - 10:30 CST

Synopsis
I need to work on what price action to expect in a prz. Sometimes it just goes down right from the prz (and thats what a prz is for right? )

Also, i need to work on where to offset impulses. Also, sometimes abcds are never completed, how can I detect this exhaustion point?

1/24/2013

Trades
For this one , I thought it was going to turn around because the end of the big impulse was nearby (see far left). In actuality, a pulse already reacted to that level, so technically i was late in reacting to that level! I was nervous because i saw it retrace to the 50% line of the impulse that reached the end of the big impulse, so it could've simply been the upstart of a new impulse isntead of the dying down of momentum!

I pulled the trigger anyways and got stopped out.


PRZ

This was based on the 161 extension of the large impulse, and the 161 extension of the other impulses, AND the end of an impulse leg. At the very least now it would be at break even. But i didn't pull the trigger because there wasn't any nice shooting star.

PRZs that would've worked

This one i got before it went down , but i didn't pull the trigger (no shooting star).

Analysis

The trade i lost i was already nervous about because the previous impulse leg hadn't completed yet, but i know that impulse legs do not complete when you have a turn around. On the other hand, i had no justification for a dramatic turn around in terms of price action, which is actually usually a slow reversal of the whole trend. In any case, there was a prz, which i didn't get till after i lost the first trade, that was more high probability.

Questions (for end of week analysis):

How are impulse legs shortened when a turn around of the dominant trend occurs?
When is it justified to ignore the completion of an impulse leg?
Where should impulse legs be offset, when there are so many nearby lows?
Why and when can impulse legs extend to the 161.8 zone and surpass the 127 zone? (see below picture)

1/25/2013

Summary:

Trades: 4
Trades Won: 0
Trades Lost: 4
Net Gain: -0.3%
Trading Time: 6:00 - 10:00 CST

Synopsis
I need to work on creating PRZs where the smaller harmonics converge with the larger harmonics, i took too many trades based on smaller harmonics when there were potentially larger harmonics nearby that would overun them! Also, a sign of bigger harmonics at play is price pausing before it hits the prz. I am encouraged that mr pip made profit today, same time and same currency (only 1 trade), its just my inexperience not the method!

This is why i am pretending my account is $10 and risking 1% of 10, so i can learn without losing much!

I have also officially convinced myself that waves travel in harmonic ratios of each other, so thats definitely true.

1/25/2013


I will only list one trade today which highlights the point above, because i am lazy. Alot of the przs were based on smaller harmonics, if i keep doing this i will post my smaller przs for later days so i can keep a record and analyze. But for now, nope.

Trades
As can be seen, i based my prz on smaller harmonics, not on the larger ones that could be more valid. Of course, i also used the large swing down as a retracement, so that was a large impulse i used, but there were larger up impulse waves that i will have to learn to take into account.

Analysis

Questions
1. How can i tell which larger harmonics are in play, and which harmonics are too insignificant to play. Also, when are smaller harmonics actually
significant, say a harmonic that is half the size of the largest, but i could still make profit on it right? How small is too small?
2. How can i tell when smaller harmonics will be reacted too?
3. How can i tell when 1:1 impulse legs will be squashed (at major trend turn?)
4. When can a leg qualify as a 1:1 impulse leg?

PRZ Reaction Analysis

Edit: updated this with just przs that i drew, and dont show how (i used more of dominant and main swings as suggested) (i went through it about twice, ill explain it during weekend. Clearly im fitting, but thats ok for each one i have a fitted harmonic justification lol, which will later be distilled into some rules!


In this section i will 'fit przs' to the price action that already occured, with the hope that i can improve my prz creation in real time! I believe each dramatic price action will have a reason based on a prz. Of course there were many przs that i created that didn't work, but thats ok im here to learn what high quality przs are.

1/26/2013
Weekend Analysis
The primary focus is going to be on using dominant and main swings to determine the most likely PRZs.

I will examine a simple formation of a main and dominant swing. There are approximately six potential PRZs that could form,depending on price action formed.



I will answer the questions based on the labels in this diagram.

Question 1: How are impulse legs shortened when a turn around of the dominant trend occurs?
When is it justified to ignore the completion of an impulse leg?

Usually, it stalls before the prz and then goes to a fibonacci retracement of the original impulse. Also, the fibonacii extension, preferably the 127 and 138, of one of the impulses of the dominant or main leg should coincide.




Question 2: Why and when can impulse legs extend to the 161.8 zone and surpass the 127 zone?
When a 1:1 PRZ is about to be broken, it will pause before the PRZ and form a structure which pierces the PRZ. This could be a sign of a strong trend, and would invalidate the 1:1 PRZ.
Must be careful, because it can also pause before the PRZ and simply compress.


As can be seen in the diagram, it paused before the 1:1 prz and formed a harmonic impulse that broke through the PRZ. Treating this as a compression would've resulted in a break even.



Question 3: Where should impulse legs be offset, when there are so many nearby lows?
On the most significant low formed before it made a new significant high.

Question 4: How can i tell which larger harmonics are in play, and which harmonics are too insignificant to play
Use the large swings of the main and dominant swings.

Question 5: How can i tell when smaller harmonics will be reacted too?
When they align up with larger harmonics, including extensions of larger swings (not just retracements).

For example, this didnt work, even though the smaller harmonics aligned with the 50% retracement of the dominant leg. There were other larger impulses on the main and dominant leg that should've been used for extensions.



Question 6: How can i tell when 1:1 impulse legs will be squashed
When it pauses before the prz, though must be careful because it can also be about to pierce the prz. Will have to look into this more.

Question 7: When can a leg qualify as a 1:1 impulse leg?
If it pulls back to the 38.2% retracement at the minimum. Ones that dont cant still be used for confluence though.