It is interesting to note that while I have posted a long example on USDCHF which is in a long term uptrend, why is it now that I am looking to short this pair? This is where it gets confusing to me even previously when I first started trading. In essence, when I am looking at the distal timeframe, I am usually looking for supportive signals to support my trade and the market conditions changes every time and thus we will have to be adaptable when it comes to trading and that we will have to see what the market is telling us. The market moves in cycles and very frequently, it will rotate between a uptrend or a downtrend. Therefore, in short, it basically depends on what is your focus at that point in time.
To simplify the idea discussed above, I think this is best explained by the chart attached.
I would say that this is one of those rare cases where both the Bearish Shark Pattern which preceded the Bullish 5-0 Pattern were both valid structural signals. This example exemplifies the notion that the market moves in cycles and that every move will be in a certain degree be related to the previous swings and this is what makes Harmonic Trading interesting.
What is even more interesting here is that this example emphasizes on the importance of a proper trade management too. For example, if we were to first trigger on the Type 1 Reversal of the Bearish Shark Pattern and wait for a home run, we will be met with a disappointment when the Bullish 5-0 Pattern was validated and the trade would probably ended up with a breakeven. Similarly, if we were to trigger on the Bullish 5-0 Pattern, we will meet another disappointment if we were to just wait for the price to simply move to the Target Profit when the price action moved back up to set us up for a Type 2 Reversal.
And this is where the discussion of the Type 2 Reversal for the Bearish Shark Pattern comes in as this was a trade which I took.
Distal (H1)
As seen in the attached chart, the price action was having a resistance at the 0.50 Fibonacci Retracement Level at the region of 0.93946.
In addition, following the impulsive test of the RSI in the overbought region, the RSI has rolled out from the extreme region which was signaling an internal weakening of the pair. There was also a divergence in this case of the Type 2 Reversal but I would not give this divergence a very strong rating though and just to acknowledge its presence.
Primary (M15)
This is where I guess I have more or less ironed out my issues with the Type 2 Reversal setup in the sense that I will wait for the right setups to come and accept nothing lesser than that.
In this case, as seen in the attached chart, I was very confident with the Type 2 Reversal in this case as I have observed the following:
- The 1.13 0B level which was the Stop Loss Limit for the pattern held as price was rejected at this level.
- There was a divergence seen on the RSI. The difference was very small but it doesn't matter so long as there is a divergence.
- Price respected the high of the Terminal Price Bar.
These were basically my confirmation factors for the Type 2 Reversal for the Primary Timeframe.
Proximate (M5)
Basically the cue for me to take the trade on the Proximate timeframe was when price broke below the rising trendline following an impulsive RSI test.
In this case, I was looking to sell at a minimum of 0.93693 and my price triggered for the trade was 0.93772 which I thought was a really good price as I have executed the trade above the PRZ.
Trade Management
There was nothing much here as the trade did not move much and the trade was closed when the price action broke above the Accelerated Trendline.
A small profit of 10.9 pips was made here. At this point, as usual, I will remind myself that it does not matter whether the price was crash from here or not as I was capitalizing on the high probability segment of the setup and all I need to know is that I have executed and managed my trades on a consistent basis which is key to success in my live trading.
Reflection
The "Penalty Box" was not a bad idea after all as it has made me focus on honing my skills in trading the Harmonic Approach and I am glad that I have taken this step. Having said that, I will still be spending some time in the "Penalty Box" till I see some consistency.
It takes a lot of persistence and determination to be successful in trading and I have since committed myself to achieve this success in my life.
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