HOW TO: enter a bullish Bat pattern on a defensive approach.
When you took last week's Harmonic patterns on the most agressive approach. You would've ended with some pretty big losses.
If you found yourself in that position, you might want to have a look at this approach.
This entry is the one that Scott Carney has created and uses, and is therefor considered as 'the' approach for the usage of Harmonic patterns. Still we do use other entries.
All the pattern ratios remain the same except for the entry point. Trading the agressive approach, you would order in the AUDCAD at the .886 XA-leg retracement and then enter it, but now we wait for the confirmation in the PRZ.
The PRZ is the Potential Reversal Zone (shown as the black rectangle), made by the AB=CD, the BC-leg extension and the XA-leg retracement levels. All the levels together form the box that's called the PRZ.
When to enter the trade.
Now the entry will take place after a bar touches all 3 levels and closes. The bar that hits all 3 levels is the Terminal price bar. The bar after the Terminal price bar should show a reversal candle or other sort of confirmation like RSI divergence. Does a confirmation show up? Enter the trade.
When to get out of the trade.
Always use the stop-loss below point X. But normally when the price hits the PRZ, it shows immediate reaction. So if the price doesn't move into favourable direction in 5 bars, close the trade. The stop-loss just functions as an airbag.
The price targets are targeted at the .382 and .618 AD-leg retracements. There's a different approach for taking your profits, which I will write about it in the next Harmonic post.
Good luck and enjoy your trading!
If you found yourself in that position, you might want to have a look at this approach.
This entry is the one that Scott Carney has created and uses, and is therefor considered as 'the' approach for the usage of Harmonic patterns. Still we do use other entries.
All the pattern ratios remain the same except for the entry point. Trading the agressive approach, you would order in the AUDCAD at the .886 XA-leg retracement and then enter it, but now we wait for the confirmation in the PRZ.
The PRZ is the Potential Reversal Zone (shown as the black rectangle), made by the AB=CD, the BC-leg extension and the XA-leg retracement levels. All the levels together form the box that's called the PRZ.
When to enter the trade.
Now the entry will take place after a bar touches all 3 levels and closes. The bar that hits all 3 levels is the Terminal price bar. The bar after the Terminal price bar should show a reversal candle or other sort of confirmation like RSI divergence. Does a confirmation show up? Enter the trade.
When to get out of the trade.
Always use the stop-loss below point X. But normally when the price hits the PRZ, it shows immediate reaction. So if the price doesn't move into favourable direction in 5 bars, close the trade. The stop-loss just functions as an airbag.
The price targets are targeted at the .382 and .618 AD-leg retracements. There's a different approach for taking your profits, which I will write about it in the next Harmonic post.
Good luck and enjoy your trading!
Comment:
Terminal price bar has been formed (see picture below) and now we wait for the confirmation bar.
Trade active:
Entered the trade because of a confirmation bar (almost a doji) on the current timeframe and RSI divergence on the 15m timeframe.
Trade closed: target reached:
Thanks to the Aussie news target 2 was hit. Managed to stay in the trade although it was a close call on the stops.