Home > Articles > Business & Management > Finance & Investing

Introduction to Harmonic Trading, Volume Two: Advanced Strategies for Profiting from the Natural Order of the Financial Markets

  • Print
  • + Share This
Scott M. Carney gives an overview of the strategies outlined in his book -- entirely new concepts that build upon the prior material presented within the Harmonic Trading approach.
This chapter is from the book

After years of research, Harmonic Trading has evolved into a distinct and comprehensive methodology that effectively analyzes the financial markets. The basic tenets of pattern recognition as quantified by harmonic ratios define a system that provides immensely pertinent technical information and identifies trading opportunities unlike any other methodology. It is important to consider the substantial advancement of Harmonic Trading since its inception.

The release of my first book, The Harmonic Trader, marked the beginning of the entire methodology. The new measurement techniques presented in this book quantified price action in a unique manner. These new ideas created the framework of an unprecedented Fibonacci measurement and price pattern recognition system that consistently defined profitable trading opportunities. Although it was not my intention to formulate such a system, these strategies were the result of extensive research to discover the most effective relationships that were encompassed by these measurement tools. Through it all, I precisely refined many general concepts and publicly divulged many "secret" strategies that comprised the fundamentals of the Harmonic Trading approach.

The unprecedented combinations of specific ratios that differentiated similar price structures as exact patterns defined an effective trading methodology, yielding relevant technical information in an unprecedented fashion. Although others years before me have utilized Fibonacci ratios within the realm of Technical Analysis, the concept of exact ratio alignments presented a new means to define M-type and W-type price structures. These precise patterns offered greater accuracy in the often vague discipline of pattern recognition for many traders.

Although the rules that define harmonic patterns seem to be common knowledge today, it wasn't too long ago that these strategies were practically considered avant-garde within the field of Technical Analysis. This new application of Fibonacci ratios created a system of rules that defined price patterns in an unprecedented fashion. For example, the common definition for the Gartley pattern—requiring a 0.618 retracement and a 0.786 retracement at the B and D points, respectively—which was originally outlined in The Harmonic Trader, has become the standard within the technical community.

These strategies have proven themselves effective through the years, but this success has engendered many Harmonic Trading-related systems that have skewed the basic tenets of the approach. These outfits have espoused the mystical charm of Fibonacci ratios to present more of a "secret code" to the financial markets than a proven system of measurement strategies within the discipline of Technical Analysis. Although I will address the problem of misinformation and unscrupulous "gurus" a little later in this Introduction, there are two critical concepts to be mindful of while studying this material:

  • Harmonic Trading is more than Fibonacci. Anyone somewhat familiar with this methodology understands that Harmonic Trading is much more than general Fibonacci analysis. The entire Harmonic Trading approach comprises a variety of tools that include more than simple Fibonacci measurement techniques and integrates a complex system of execution and management strategies. Moreover, the new ideas presented in this book incorporate an even wider gamut of unprecedented trading tools.
  • Harmonic Trading is still evolving. In my first book, I presented a number of technical measurement strategies that quantified price patterns with respect to their alignment of Fibonacci ratios. The Harmonic Trader was unprecedented in that it was the first material to emphasize the importance of exact alignments and to employ specific ratio combinations that differentiated a variety of patterns. Although The Harmonic Trader outlined the framework of this methodology, Harmonic Trading: Volume One represented a substantial advancement to the basic approach. Those two books represent more than 500 pages of some of the most comprehensive pattern strategies within the field of Technical Analysis and dedicate a considerable portion of the material to identification techniques, outlining the strict rules that validate structures as patterns. This book builds upon that foundation and improves upon the entire methodology to outline effective trading strategies from start to finish.

Since its release in 1999, many have tried to lay claim to the ideas that were first espoused in The Harmonic Trader. Despite other interpretations, Harmonic Trading: Volume One truly distinguished this approach from the often misguided and misappropriated use of basic Fibonacci strategies. Meanwhile, this book advances the basic tenets of Harmonic Trading offering greater "standardization" of pattern structures and improved confirmation strategies that optimize trading decisions.

As these strategies evolve, there will continue to be a need for more thorough statistical validation to improve the application of these methods and to enhance the overall accuracy of the approach. In fact, this is a driving principle behind the entire Harmonic Trading system—always improve upon what works. Although this may challenge the old adage: "If it ain't broke, don't fix it," the effectiveness of this approach (and of any trading methodology) depends upon continual improvement. I offer comprehensive case studies throughout this material. I will continue to compile research to validate the effectiveness of the Harmonic Trading approach. Furthermore, new concepts such as the RSI BAMM and the 5-0 pattern represent substantial improvements upon the initial foundation of this methodology.

New Ideas in Harmonic Trading

The strategies outlined in this book are entirely new concepts that build upon the prior material presented within the Harmonic Trading approach. Many new topics will be presented with particular emphasis on the Harmonic Impulse Waves, patterns within established trends, and BAMM Theory. In particular, the entire RSI BAMM strategy will be outlined. I will present new patterns such as the 5-0, the Reciprocal AB=CD, and the Alternate Bat. Although Volume Two references many of the basic tenets of the Harmonic Trading approach, this material consists of mostly new ideas and trading strategies. The new patterns and expanded measurement techniques significantly advance the primary identification tools established within this approach. For example, the 5-0, the Alternate Bat, and the Reciprocal AB=CD are important new structures within the existing array of harmonic patterns. Furthermore, these new structures also comprise the basic framework of more advanced techniques. Hence, Volume Two represents a significant evolutionary step and an essential new direction that enhances the existing methodology immensely.

The most significant concept presented in this book and the most profound advancement of the entire Harmonic Trading methodology is outlined in the RSI BAMM methodology. This new complex system incorporates a standard technical indicator—the Relative Strength Indicator (RSI)—with advanced Harmonic Trading measurement techniques. The RSI BAMM employs precise ratio measurements and exact structural pattern specification to identify critical technical price levels. All of the material in Volume Two—especially the RSI BAMM—offers unprecedented strategies that identify the areas where overall trend divergence and harmonic pattern completions define the most critical technical levels. In addition, the new ideas presented in this material advance the basic theory of price pattern recognition by requiring other technical conditions to exist to validate potential opportunities with improved accuracy. Specifically, the advancement of the RSI BAMM separates the minor reactive moves from the more substantial trading opportunities and provides extensive technical information regarding the future potential direction of the price action. Although this material will take some time to digest, I believe these advanced concepts dramatically enhance the entire Harmonic Trading system, furthering its efficacy in pinpointing the best trading opportunities.

  • + Share This
  • 🔖 Save To Your Account

InformIT Promotional Mailings & Special Offers

I would like to receive exclusive offers and hear about products from InformIT and its family of brands. I can unsubscribe at any time.

Overview


Pearson Education, Inc., 221 River Street, Hoboken, New Jersey 07030, (Pearson) presents this site to provide information about products and services that can be purchased through this site.

This privacy notice provides an overview of our commitment to privacy and describes how we collect, protect, use and share personal information collected through this site. Please note that other Pearson websites and online products and services have their own separate privacy policies.

Collection and Use of Information


To conduct business and deliver products and services, Pearson collects and uses personal information in several ways in connection with this site, including:

Questions and Inquiries

For inquiries and questions, we collect the inquiry or question, together with name, contact details (email address, phone number and mailing address) and any other additional information voluntarily submitted to us through a Contact Us form or an email. We use this information to address the inquiry and respond to the question.

Online Store

For orders and purchases placed through our online store on this site, we collect order details, name, institution name and address (if applicable), email address, phone number, shipping and billing addresses, credit/debit card information, shipping options and any instructions. We use this information to complete transactions, fulfill orders, communicate with individuals placing orders or visiting the online store, and for related purposes.

Surveys

Pearson may offer opportunities to provide feedback or participate in surveys, including surveys evaluating Pearson products, services or sites. Participation is voluntary. Pearson collects information requested in the survey questions and uses the information to evaluate, support, maintain and improve products, services or sites, develop new products and services, conduct educational research and for other purposes specified in the survey.

Contests and Drawings

Occasionally, we may sponsor a contest or drawing. Participation is optional. Pearson collects name, contact information and other information specified on the entry form for the contest or drawing to conduct the contest or drawing. Pearson may collect additional personal information from the winners of a contest or drawing in order to award the prize and for tax reporting purposes, as required by law.

Newsletters

If you have elected to receive email newsletters or promotional mailings and special offers but want to unsubscribe, simply email information@informit.com.

Service Announcements

On rare occasions it is necessary to send out a strictly service related announcement. For instance, if our service is temporarily suspended for maintenance we might send users an email. Generally, users may not opt-out of these communications, though they can deactivate their account information. However, these communications are not promotional in nature.

Customer Service

We communicate with users on a regular basis to provide requested services and in regard to issues relating to their account we reply via email or phone in accordance with the users' wishes when a user submits their information through our Contact Us form.

Other Collection and Use of Information


Application and System Logs

Pearson automatically collects log data to help ensure the delivery, availability and security of this site. Log data may include technical information about how a user or visitor connected to this site, such as browser type, type of computer/device, operating system, internet service provider and IP address. We use this information for support purposes and to monitor the health of the site, identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents and appropriately scale computing resources.

Web Analytics

Pearson may use third party web trend analytical services, including Google Analytics, to collect visitor information, such as IP addresses, browser types, referring pages, pages visited and time spent on a particular site. While these analytical services collect and report information on an anonymous basis, they may use cookies to gather web trend information. The information gathered may enable Pearson (but not the third party web trend services) to link information with application and system log data. Pearson uses this information for system administration and to identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents, appropriately scale computing resources and otherwise support and deliver this site and its services.

Cookies and Related Technologies

This site uses cookies and similar technologies to personalize content, measure traffic patterns, control security, track use and access of information on this site, and provide interest-based messages and advertising. Users can manage and block the use of cookies through their browser. Disabling or blocking certain cookies may limit the functionality of this site.

Do Not Track

This site currently does not respond to Do Not Track signals.

Security


Pearson uses appropriate physical, administrative and technical security measures to protect personal information from unauthorized access, use and disclosure.

Children


This site is not directed to children under the age of 13.

Marketing


Pearson may send or direct marketing communications to users, provided that

  • Pearson will not use personal information collected or processed as a K-12 school service provider for the purpose of directed or targeted advertising.
  • Such marketing is consistent with applicable law and Pearson's legal obligations.
  • Pearson will not knowingly direct or send marketing communications to an individual who has expressed a preference not to receive marketing.
  • Where required by applicable law, express or implied consent to marketing exists and has not been withdrawn.

Pearson may provide personal information to a third party service provider on a restricted basis to provide marketing solely on behalf of Pearson or an affiliate or customer for whom Pearson is a service provider. Marketing preferences may be changed at any time.

Correcting/Updating Personal Information


If a user's personally identifiable information changes (such as your postal address or email address), we provide a way to correct or update that user's personal data provided to us. This can be done on the Account page. If a user no longer desires our service and desires to delete his or her account, please contact us at customer-service@informit.com and we will process the deletion of a user's account.

Choice/Opt-out


Users can always make an informed choice as to whether they should proceed with certain services offered by InformIT. If you choose to remove yourself from our mailing list(s) simply visit the following page and uncheck any communication you no longer want to receive: www.informit.com/u.aspx.

Sale of Personal Information


Pearson does not rent or sell personal information in exchange for any payment of money.

While Pearson does not sell personal information, as defined in Nevada law, Nevada residents may email a request for no sale of their personal information to NevadaDesignatedRequest@pearson.com.

Supplemental Privacy Statement for California Residents


California residents should read our Supplemental privacy statement for California residents in conjunction with this Privacy Notice. The Supplemental privacy statement for California residents explains Pearson's commitment to comply with California law and applies to personal information of California residents collected in connection with this site and the Services.

Sharing and Disclosure


Pearson may disclose personal information, as follows:

  • As required by law.
  • With the consent of the individual (or their parent, if the individual is a minor)
  • In response to a subpoena, court order or legal process, to the extent permitted or required by law
  • To protect the security and safety of individuals, data, assets and systems, consistent with applicable law
  • In connection the sale, joint venture or other transfer of some or all of its company or assets, subject to the provisions of this Privacy Notice
  • To investigate or address actual or suspected fraud or other illegal activities
  • To exercise its legal rights, including enforcement of the Terms of Use for this site or another contract
  • To affiliated Pearson companies and other companies and organizations who perform work for Pearson and are obligated to protect the privacy of personal information consistent with this Privacy Notice
  • To a school, organization, company or government agency, where Pearson collects or processes the personal information in a school setting or on behalf of such organization, company or government agency.

Links


This web site contains links to other sites. Please be aware that we are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of each and every web site that collects Personal Information. This privacy statement applies solely to information collected by this web site.

Requests and Contact


Please contact us about this Privacy Notice or if you have any requests or questions relating to the privacy of your personal information.

Changes to this Privacy Notice


We may revise this Privacy Notice through an updated posting. We will identify the effective date of the revision in the posting. Often, updates are made to provide greater clarity or to comply with changes in regulatory requirements. If the updates involve material changes to the collection, protection, use or disclosure of Personal Information, Pearson will provide notice of the change through a conspicuous notice on this site or other appropriate way. Continued use of the site after the effective date of a posted revision evidences acceptance. Please contact us if you have questions or concerns about the Privacy Notice or any objection to any revisions.

Last Update: November 17, 2020