The PZ Harmonic Trading indicator is probably the most complete harmonic patterns auto-recognition indicator, and takes fibonacci projections as seriously as you do.
Detects Bat, Alt. Bat, Gartley, Crab, Butterfly, Cypher and Shark patterns
It plots primary, derived and complementary Fibonacci projections
It evaluates past price action and displays every past pattern
It implements a multi-timeframe dashboard
It uses breakouts to signal profitable entries
It plots all the pattern ratios on the chart
Inspired by Scott M. Carney's book Harmonic Trading Vol. 1, this indicator has been designed to fulfill the needs of the most purist and exigent harmonic traders.
Fibonacci projections are vector-independent
It implements email/sound/push alerts
It plots the AB=CD projection
Harmonic Trading Ratios
The indicator calculates all the important fibonacci ratios for the XA and BC vectors of the pattern, and plots them by the Point D if applicable.
Primary Ratios
Directly derived from the Fibonnaci Number Sequence.
- 0.618 = Primary Ratio
- 1.618 = Primary Projection
Primary Derived Ratios
- 0.786 = Square root of 0.618
- 0.886 = Fourth roof of 0.618 or Square root of 0.786
- 1.130 = Fourth root of 1.618 or Square root of 1.27
- 1.270 = Square root of 1.618
Complementary Derived Ratios
- 0.382 = (1 - 0.618) or 0.618e2
- 0.500 = 0.770e2
- 0.707 = Square root of 0.50
- 1.410 = Square root of 2.0
- 2.000 = 1 + 1
- 2.240 = Square root of 5
- 2.618 = 1.618e2
- 3.141 = Pi
- 3.618 = 1 + 2.618
Trade Execution
Once a pattern is detected, the following steps have to be taken, which can lead to take or discard the trade. Bear in mind that a pattern is not valid by itself and it can expand as long as it likes. Your job has an harmonic trader is to assess the validity of the pattern and the potential reversal zone before entering the market.
1. Pattern Recognition
This indicator auto-detects and alerts harmonic patterns.
2. Find the Potential Reversal Zone (PRZ)
Evaluate the fibonacci projections plotted on the chart by the indicator and look for strength signs. Can you find at least three converging projections? Do you see primary ratios? Is the AB=CD projection present?
3. Wait until the PRZ is rejected by the market
The PRZ can be tested and rejected by one single Terminal Price Bar, or the market can reverse and breakout the PRZ without testing all the fibonacci projections. In any case, the market has to move before you take the trade. You are a follower, not a predictor.
4. Enter the market setting the proper stop-loss
Trade the breakout or the rejection of the PRZ and set the proper stop-loss. The farthest price level of the PRZ or the Point X of the pattern are suitable stop-loss levels.
5. Position Management
It is recommended to reap partial profits as soon as possible to lock into a free ride. Scott M. Carney proposes a very interesting position management system based on a 0.382 Trailing Stop, measured from the reversal point to the reversal extreme.
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