# Chapter 19, Part I. Harmonic Approach to Recognizing a Trend Day Page 7

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 21, 2013.

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1. ### Sive Morten Special Consultant to the FPA

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For discussion of the trading process we will use the same chart as #4 but with necessary markings of trading process. The common major feature of trading trending days is to use harmonic numbers. Since we know that if this is a real trending day, the market should not show retracement deeper than some harmonic number (or its fraction), because we do know that any move in the market greater than some harmonic number is not just occasional. So, if market shows during, as we suggest, the trending day a move against us for more than harmonic number – it will quickly tell us that this is probably not the trending day. Also it gives us a huge advantage in placing very tight stops for same reason – the market should not move against us greater than harmonic number. The major task though is to find a balance, what fraction of the harmonic number to use – so, that we can enter the market from one point of view, and to not take too much risk from the other point of view. Since this is a trending day we have to use some shallow fraction of the harmonic number to be possessed in the trades. Speaking about our example, and because we will trade on 5-min chart, we will use 0.382*37 = 14 pips retracement to enter. Stop will never be placed beyond 37-40 pips, i.e. 1 harmonic number from the swing high. Other words, not farer than 40-14 = 26 pips from our entry point. Cool, right? Now, what do we want on trending day, since market opens near the low and should close near the highs? We want to hold some position right through all day, to get sufficient profit. Second, we want reduce risk and simultaneously use different possibilities that could appear during the trading session.

Chart #7 | 5-min EUR/USD

That is our working chart. Here we see different patterns that I’ve marked with numbers: #1 - initial AB=CD pattern; #2, 3, 5, 6 – consolidation patterns, i.e. classical flags and pennants; #4 – sideways consolidation. As we said, we will apply 14 pips retracement entry level and 26 pips stop order initially to any position, due to the properties of harmonic number and trending day. So, how we will act here:

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– although this is excellent AB=CD that shows perfect 0.618 retracement from initial move up, we probably couldn’t catch it, because this is first pattern in the beginning of the trend. But it has different importance. Usually, when market turns momentum the first retracement is AB=CD. That is a prompt that further price movement could be significant. Also it gives us a Gartley 222 and a larger AB=CD that allows us to estimate the targets at 1.4236 and 1.4274.

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Lasted edited by : Apr 17, 2016