Just like Anti-Turtles is not the only price action pattern, so “Shark” and 5-0 are not the only graphical configurations included in the harmonious trading system. The list of these areas of technical analysis is quite extensive, and they overlap with each other. But could it be otherwise if harmonious trading is a combination of models and Fibonacci ratios, allowing to identify potential reversal zones with a high probability?
In previous materials, we studied the 1-2-3 pattern in sufficient detail and even described the 10-20-50 rule, used as a filter to increase trading efficiency. Let me remind you, the last number (50) is the rollback level at which the correctional extremum can be located. The American approach assumes that all models where the rollback is less than 50% are not working. In fact, the 38.2% -50% range reveals the Bat pattern. True, it is used, as a rule, in a completely different way.
In my opinion, the market is not as harmonious as the theorists of this area of technical analysis try to imagine. Therefore, it makes no sense to look for perfect models. A simplified approach involves the study of the relationship “level of correction – target. ” It should be understood that any technique is probabilistic in nature. Hanging off a target has a greater chance than overcoming it. However, a successful convergence zone test is not excluded. In order to protect yourself from it, it is mandatory to establish protective stop orders.
In the case of the “Bat” pattern, we are talking about a 38.2-50% rollback from the XA wave and a target of 88.6% from the same wave. Simply put, for a given correction level, we will expect a rebound when quotes reach the convergence zone near the 88.6% mark. At the same time, as the example with the four-hour EUR / CAD chart shows, it would be extremely risky to open a short only by the rules of harmonious trading. Quotes more than once rewrote the extreme before changing direction.
Another thing is if in the area of convergence a trader begins to look for a reversal pattern. Or, better yet, combinations of reversal patterns. In the case of EUR / CAD, we are talking about the interaction of the “ Three Indians ” and 1-2-3. If such a configuration occurs in the area of convergence, then it is an explosive mixture that allows you to open a deal with a high probability of signal processing.
If a trader owns the price action toolkit, he can easily determine entry points and stop orders. In this example, a break in the auxiliary trend line drawn through the correction lows of the Three Indians pattern was a signal that a short position would open. A protective stop is located above point 3 of the pattern 1-2-3. Returning to this level will increase the risks of continuing the northern campaign of the euro against the Canadian dollar.
The way out of the shorts also makes sense to identify using previously studied models. In relation to EUR / CAD, “ Wolfe Waves ”, a strong reversal pattern, began to form through several bars. The fall in quotes for the suite zone allowed the trader to take profits in the amount of more than five figures. The profit factor exceeded mark 3.
Thus, for the application of harmonious trading patterns, it makes sense to develop a comprehensive strategy.