Despite the invalidation of the Bearish Gartley Pattern, there was a signal to go short on it though and that trade itself took a loss though. Since this is an interesting setup, I have decided to combine the Bearish Gartley Pattern trade which failed together with this Bearish Crab Pattern as I find this to be truly educational and that in trading, there will be hits and misses along the way and we will have to move on and trigger a trade when the setup defines an entry and not be afraid to take a trade even the previous one was a loss.
Bearish Gartley Pattern - Type 2 Reversal
In this earlier trade, I have triggered the trade on a Type 2 Reversal at around the 79.60 region for a short and the trade was later taken out at 79.85, which took a loss of 25 pips.
H1 - Primary
Following the completion of the pattern, the RSI completed a complex structure after approximately 4 candles and that was my initial trade validation.
There was a brief Type 1 Reversal but it was a trade which occurred when I was away from my computer and thus I stayed away only to trigger on a Type 2 Reversal.
In this case, there was price stabilization and the Japanese Candlestick patterns were also hinting a possible reversal which made me decided to take a short on this pair following the pattern's completion.
H4 - Distal
When it comes to the longer timeframe, in this case the distal timeframe, my only consideration for this trade was that the price action was near a resistance zone and thus it sort of supported me for a sell position.
M5 - Proximate
In this case, there was probably a margin of error in my trade execution as I was very confident (which was bad in this case) that I decided to find an entry on the M5 timeframe instead of my usual M15 timeframe.
However, the trade was later taken out at a loss as the price action continued in the predominant trend.
The possible reason in the case of this trade failure was probably that the RSI formed a complex structure and it will create an expectation that the price action will be probably move back up and then experience a secondary retest of the RSI and setup an Impulse RSI structure.
Bearish Crab Pattern - Type 1 Reversal (Morphed from the earlier invalidated Bearish Gartley Pattern)
This is where the beauty of Harmonic Trading comes into play where certain invalidated patterns will move on to complete as another pattern and this is termed "Morphing" as Scott called it to be.
H1 - Primary
In the completion of the pattern in the primary timeframe, this is considered to be an ideal setup to me where the RSI is early and it comes prior to the pattern's completion. The reason behind this is that very frequently, if the pattern completes before the RSI exits from the extreme overbought or oversold area, there is a tendency of an overspill or even a chance of a pattern invalidation. This observation was through my trial and error experiences with the RSI and Harmonic Patterns and these 2 occurrences were recorded in my journal quite often. Therefore, it is important to put everything together on all the timeframes to gather as much technical information to execute a trade. In most cases, I will put more emphasis on the proximate timeframe since it is the leading timeframe and it will tend to be early.
In addition, what makes this pattern completion stronger in terms of a technical and structural signal was that there was a simple RSI divergence following the establishment of the Terminal Price Bar which occurred simultaneously with a sign of price stabilization in the form of a Harami which is an indication of a possible resistance. The candle following the Harami confirmed the signal though with a lower close.
H4 - Distal
As opposed to the earlier Bearish Gartley pattern, the distal timeframe for the Bearish Crab Pattern became quite significant as the RSI came into play this time round and offered a very strong technical condition in the form of a simple RSI Confirmation which was good enough for me. This could have been a shake-in move.
M15 - Proximate
The trade was triggered in the presence of a RSI BAMM Divergence completion at 80.345 with a Stop Loss at 80.98. It should be note though that the trade was only triggered on the second impulsive RSI structure which occurred after the the pattern completed. The first impulsive RSI occurred before the pattern's completion and the cue to short was not present yet as the pattern was not considered complete at that point. Following the completion of the second impulsive RSI structure which was higher than the preceding impulsive structure, it negated the significance of the earlier impulsive structure and set up the RSI BAMM completion and thus a short was executed then.
In addition, since this was a RSI BAMM trade, I will tend to give it more room for the price action to assert itself and allow the pattern to play as RSI BAMM in most cases will give us a strong reversal.
Since this is an educational trade and one that possesses a lot of learning points, I have decided to include the trade management aspects of the trade as this is what Harmonic Trading is all about and it is a COMPLETE system.
Trade Management
Following the trade execution, I have projected the target profits for the trade which were defined as IPO1 and IPO2 as seen in the attached chart.
The first batch of the trade was closed later when the price action hit IPO1 at 79.824, gaining a profit of 52.1 pips.
The second batch was later closed when the price action violated the accelerated reversal trendline.
The trade was squared off at 79.664, gaining a profit of 68.1 pips, which wrapped up the whole trade.
I have also include another screen capture which highlights the importance of adhering to the trade management rules and keep the emotions of greed and fear of the trading process. If I were expecting a home run in this case, I would have been sorely disappointed. :P
Therefore, it is important to keep the rules of trade management and don't even bother of the outcome even if the price action crashed after the trendline violation.
In addition, it should be noted that this trade did go through quite a bit of consolidation which put the trade in some heat and this is something that we will have to expect in trading and not all pattern completions will give us immediate home run reversals and thus, it is important to manage our own expectations and stay grounded in our trading. I have been through the stage of expecting home run scenarios and even aim to be loss free and these are not always the case. There will be short reversals with small profits only and there will be losses too as these are all part of trading.
Happy Trading everyone and I hope this trade has been helpful for those who are trying the grasp the concept of the Harmonic Trading Approach by my mentor, Scott Carney. :)
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