Traders who do not wish to study the market intra-day or feel more comfortable recognizing price movements that last for several trading sessions tend to use swing trading techniques.This swing trading methodology uses harmonic formations to determine the optimum entry level. Market geometry is a mathematical method of market analysis, which compares the relationship between segments of a graph formed by peaks and troughs.
Harmonic trading is a technical analysis tool that relies on the probability of repetition of particular formations. It is crucial to its effectiveness that patterns denoting entry and exit levels are identified according to this probability. Harmonic trading is applicable to trading most asset markets. The system uses H1, H4 and D1 charts to determine the likely turning point on the chart.
Tools used in this Strategy.
Swing traders using Harmonic Patterns use two harmonic formations which are found on H1, H4 and D1 charts. In addition, the classical trend analysis is used to determine the potential of any given formation. As a result, the positioning will be determined by the overall trend. The formation is always fluid and the XA range is a determinant of the trend.
Bat formation (up and down)
Gartley formation (up and down)
Entering a position
The signal to take a position is confirmed when the Bat or Gartley formation occurs. Most people have heard of the Bat signal but the Gartley signal is just as prevalent.
A position should only be entered into when the harmonic formation is complete, that is to say, point D has been confirmed. As point D is reached, the continuation of the trend trajectory defined by segment XA is confirmed.
A reversal bar candle will be formed. This candle is a strong trending signal that contradicts the current trend. It can be recognized easily as it has a strong body which confirms the higher order of the trend.
Example of a bearish bat formation on the EUEUSD H1 chart.
Exiting a position
The stop loss for a position opened using a harmonic formation should
Be placed above the level designated by point D in the case of a short. For a long position, below point D. A take profit should be set at the level at which point A was formed. Once the scenario is confirmed, and point D becomes the actual end point of the correction, the stop loss should be moved to break even.