Harmonic Patterns as Exit Strategy


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Video Transcription:

Hello, traders, welcome to the Pro Trading Course and the fifth module Incorporating Harmonics. Now, we’re going to take a look at the other side of the trade management, how to exit with harmonic patterns. And, well, what we’re going to do here, what we’re going to learn is how to, not to exit with harmonic patterns, because you know we know we have to have determined levels in order to exit our trades. But we are going to use harmonic patterns to make our exit decisions more reliable and accurate.

Harmonic Patterns as Exit Strategy

So we’re going to jump right into a chart. And this is a one-hour chart on crude oil. And let’s assume that we are looking at price right here at the bottom right of your chart, all right? Here we have gone long at 35.54. Remember that this is a simulation trade. But let’s assume that we do have this important area of support. I’m going to show you the daily so you see what important area of support I’m talking about. And actually, I can show you this zone right here, okay? If we go back a little bit, you can see this is the area that price tested before breaking to the upside.

So what we are doing here, we’re trying to take a long position when we see this rejection, all right? And when price comes all the way down here in such a strong manner and starts to range, starts to reject these zones, you know that buyers are taking over the sellers that have pushed price from these highs to the low that we are trading in right now. So we go long, all right? And we’re going to chose our area or target zone. And our target zone, of course, is the previous base. And the previous base can be found here and can be found here. So our targets are going to be around this zone. Remember that if you want to be protective of your trade, you can put your targets around the 34, the 37.50, which is a few ticks below the zone. But if you want to be more precise on your exits, you can use harmonic patterns.

Harmonic Patterns as Exit Strategy1

Now, you can see that price actually come, I’m sorry, came all the way to our zone, and we have our Fibonacci retracement levels, okay? We are going to add the 50 to see if we are hitting it around that level. And if we are, it’s going to be an even more important area. So the 50 is a few ticks below where you could have put your exits. And this is the proper way to exit that trade for a very nice 200 ticks, 198 ticks in profit, all right? And if you’re trading one lot, that’s 2k. Maybe you have won on that trade. But if you wanna be more accurate or even more accurate with your exits, you can use harmonic patterns. And now, what I’m going to do, I’m going to zoom in on the chart so we have a better look at the zone we’re looking at, all right?

Now, what we’re going to do is we’re going to try to find some kind of a harmonic looking pattern, okay? Remember, the first thing we’re going to do is we’re going to try to find the cycles in price, all right? And after we find the cycles in price, what we are going to do is we are going to draw the Fibonacci retracement levels to see if this is an actual pattern, all right? Now, not only we are going to do that, but what we are going to do is we are going to calculate the exit Fibonacci retracement levels of the possible pattern.

Harmonic Patterns as Exit Strategy2

Now, the first cycle is already taken. So what we are going to do is we’re going to grab our Fibonacci tool, and we are going to calculate this retracement. Okay, and, well, if we grab a Fibonacci tool from this high to this low, from the high of the cycle to the low of the cycle, you can see that we have retraced 88.6%. And what we’re going to do now is we’re going to calculate the retracement from this low to the end of the cycle, from the low of the cycle to the end of the cycle, to see if this retracement is around a Fibonacci retracement that could start a harmonic pattern or a bearish harmonic pattern. And as you can see, well, price retraced 23.6%. So what this is, what we might be looking at is the possible butterfly, all right? So what we’re going to do is we’re going to draw the second part of that bearish harmonic cycle. And what we’re going to do now is we are going to calculate the targets of the butterfly, all right? Remember that the exit that we had before using the…well, before using the harmonic patterns was around the 37.50 zone, all right? A little bit to the upside, that’s fine, because we had this zone of strong resistance that we might hit and we also had the 50 Fibonacci level. And if we are not using any harmonics as our exit strategy, well, this is a perfect zone to put our targets, because we want to get filled before we have a rejection.

Harmonic Patterns as Exit Strategy3

Now, what we’re going to do is we’re going to calculate the targets of this harmonic pattern or this possible butterfly. And after calculating the expansion from the first leg of the cycle, we have found that the actual zone or the actual target zones of this butterfly are right here in this, well, area of the resistance that we have colored with the peach rectangle. Remember that a butterfly ends around the 127.2 and the 161.8. So we are going to put our target using the butterfly or the possible butterfly in the middle of the zone. And where are we going to put it in the middle of this zone where we also have the Fibonacci retracement from this high to this low. And we know that the 61.8 is just right here, okay? So what we’re going to do is we are going to use this tool for a possible butterfly and a possible exit around 37.97, just below the 38 whole number.

Harmonic Patterns as Exit Strategy4

Well, I’m going to show you exactly what happened here, okay? We don’t know if price is going to reject this level, the 61.8 at the top of the resistance or continue and break above it. But by using the harmonic patterns, we have, well, now profited an extra 50 ticks on this trade or 500 dollars if you are using or if you’re trading one lot. And if you want to see what happened, well, price went just above our exit targets around the 61.8 and started to drop instantly. So by using these target zones that harmonics gives us, we can actually profit a little further or a little more from our trades than just using the preferred zones of support and resistance.

 

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