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Define in your own words what Harmonic Trading is?
As always, to properly understand a strategy, a clue must most likely be in it's nomenclature. Saying this, let us analyze the meaning of harmonic trading. When we say something is in harmony, we can say that for something to be in harmony, it has to be in synchrony, following a certain repititive pattern and rhythm.
Based on the description given above, HArmonic trading can be seen as repetitive movements that occur in a crypttoactive market,of which most likely forms a bullish or a bearish trend, and is most likely followed by a side to side movement in order to accumulate or distribute capital of which after leaving this pattern returns to a market trend again.
It basically relies on the repetitive pattern of a market after combing different trading patterns to produce a certain trading method and relying on the repetition of this pattern in the long run and making affirmations on the prediction via Fibonacci retracement. The affirmation is made when the trend of the asset matches with certain Fibonacci ratios once this occurs it is confirmed that it is a valid harmonic pattern.
Traders tend to look out for these harmonic patterns while making chart analysis and find ways to correlate them with certain Fibonacci ratis in order to test their validity.
Define and Explain what the pattern AB = CD is and how can we identify it?
The AB=CD pattern was discovered by was discovered by HM Gartley,Gartley was a great innovator of different methods of technical analysis,he based most of hi analysis on how price actions act in a market and also make studies regarding the patterns that are formed in the market and also observed these pattern and how they were repeated along the market trends. A pattern was developed from 4 movements which he pegged "A, B, C , D". It is observed that the patterns occur in wave forms of which there are low price points which signifies that one should place a buy and also points of high which signifies that one should place a sell order.
This trading pattern is highly advantageous because no matter the financial market or time frame one is observing the ABCD pattern is always identifiable hence giving trders more leverage on the market of which they are about to make a trade on this peculiarity makes it ideal for the pattern to be used for operation in financial markets.
With the points outlined earlier regarding Harmonic Trading the price will always repeat the patter so it is left for the trader to spot these positions and align their view with the price movement and set the necessary requirement for entry into the market, This requires constant practice and good knowledge on Harmonic Trading.It should also be noted that this pattern alone is not enough to make certain trading decisions and likewise guarantee market certainty hence other analytical methods should be combined alongside it in order to yield better results.
There are two types of AB=CD patterns, the bullish AB=CD which gives an indication of the next bullish movement(uptrend) and the Bearish AB=CD pattern which shows the next bearish movement(downtrend) i shall establish the two movements shortly
This movement can be used to indicate an uptrend and it can be seen in a market where the price is falling and it shows why when plotting points A,B,C,D they must form a downtrend which in turn gives an indication of the next uptrend. After these points have been plotted, which moved in correlation to a decrease in price, the validity of the movement is confirmed via Fibonacci retracement of which I will be illustrating with the diagrams below.
When making the comparison via the Fibonacci retracement when tracing the first movement that moves from point A to point, there can be no secondary movements that exceed the points listed above(A and B)
The second location tagged as point C should always be lower than point A and it should range between 61.8% and 78.6% of the Fibonacci retracements, which aligns to the movement of point A and B.
Point D should also range between 127.2% and 161.8% of the Fibonacci retracement of which is the movement between point B and point C.
This is usually identified following a bullish momentum in the chart in which the trader is analysing at a specific time frame it gives an indication that the four points ABCD which is to be found will be done during a bullish movement this is illustrated n the screenshot below.
After having identified the four points as I earlier stated it s always necessary to compare with the fibonnacci retracement to validate the movement as a bearish market trend one should always make sure this procedure is done because it validates the Harmonic Trading strategy. The validation process is almost as that of the bullish market trend but there are a few contradictions but with the same values as seen below
When making the comparison via the Fibonacci retracement when tracing the first movement that moves from point A to point, there can be no secondary movements that exceed the points listed above(A and B)
The second location tagged as point C should always be higher than point A and it should range between 61.8% and 78.6% of the Fibonacci retracements, which aligns to the movement of point A and B.
Point D should also span between 127.2% and 161.8% of the Fibonacci retracement of which is the movement between point B and point C.
ENTRY CRITERIA
This trading strategy gives a good insight on entry and exit points on the market which is being analysed.
The first step is identifying points A,B,C,D and correlate them to the trend being observed in the market after they have been identified they should be validated via the Fibonacci retracement by confirming that C is between 61.8% and 78.6% likewise point D should also span between 127.2% and 161.8% in the Fibonacci retracement if the price lies on a bearish candle at the time of entry if this correlation is not seen the pattern should be disregarded and another should be south for that matches the AB=CD pattern.
if the point D should merge with the Fibonacci levels at 127.2% and 161.8% and then starts to form a bearish candle that movement there signifies a good entry point.
EXIT CRITERIA
To make an exit on the market there it is always advisable to make a stop loss 2% above or below the point last drawn and that aligns with the point D of our marking. This is a very crucial point in this market and it is very vital to place that exit poin at that range because the point D signifies two things in this market which is our entry point and also our take profit point and that is why it is advisable to make a range of 2% margin in order to prevent the loss of outputs.
Make 2 entries (Up and Down) on any cryptocurrency pair using the AB = CD pattern confirming it with Fibonacci.
EOSUSDT SELL order tradingview
CONCLUSION.
The ABCD strategy is a very useful one, and has shown to be reliable in a lot of ways. it is also compatible with the fibonnacci retracement indicator, and is very easy to understand. In general, I enjoyed carrying out this task, even though time has shortened my expectations, ii hope I have given all the necessary information. special thanks to @lenonmc21 for the awesome lecture, till the Adios amigos!