To avoid becoming a “leek”, you need to learn to recognize the signals of trend reversal.

When the trading price rises to a certain level, it will definitely fall. After falling for a certain period of time, it will also rise. This is an iron rule.

There are many tools for judging trends, such as trend lines, moving averages, etc., which are all commonly used tools. However, there will be a lag in information. If traders wait until they know the market conditions and then follow the trend, they will miss out on a period of profit, or the trend will reverse as soon as they place an order, and they will become "leeks".

Is there a tool that can identify trend reversal signals in advance and buy low and sell high?

Today I will share a counter-trend trading theory - Harmonic Theory, and its basic form [AB=CD]

1. Understanding Harmonic Theory

Harmonic theory, also known as "harmony theory", is a predictive morphology proposed by H.M. Gartley and further developed by Larry Pesavento. It is based on geometric calculations and Fibonacci ratios. Common patterns include: ABCD, Gartley, Bat, Butterfly, Crab, Shark and Five Zero (5-0), etc.

In the next few issues, we will share their characteristics and usage tips one by one. Welcome everyone to like, follow and support!

Harmonic patterns in the foreign exchange market are different from traditional flags, triangles, double bottoms and tops, head and shoulders, diamonds and wedges. Traders do not need to decide whether to enter the market after a rise or fall in prices is formed. In harmonic theory, the opportunity to enter the market before the market starts can be predicted based on the harmonic shape.

Its buying and selling idea is to follow the principle of "buy low and sell high". Usually, whether buying or selling, the price is relatively ideal, and the profit and loss ratio is also good. It belongs to the category of left-side trading.

Harmonic trading is a technical analysis method based on wave principles and Fibonacci numbers, which helps traders identify high-probability turning points in the market. It is equivalent to counter-trend trading to find reverse buying and selling opportunities in the rising or falling trend of the market.

The advantages of using harmonic trading method to make orders: the entry point is established, the stop loss point is effective, the take profit and stop loss points are ideal, and there is no need to watch the market all the time.

2. Learn the basic form AB=CD

Everything requires a solid foundation, and then you won’t be afraid of the storms that come later.

AB=CD is the basis of harmonic theory and the only 4-point pattern. Other harmonic patterns include 5-point [Bat], [Butterfly], [Gartley], [Shark], [Crab] and 6-point [5-0], which are basically obtained by adding point X to AB=CD.

The AB=CD pattern has two directions: bullish and bearish. Point D is where the price may reverse, usually a range.

The meaning and judgment method of each point of the morphology:

Point A: The absolute high or low point of the selected market

Point B: The end point of the first market AB

Point C: The end point of the second market segment BC, which falls between the Fibonacci retracement lines of AB [0.382, 0.886), and does not exceed point A.

Point D: Find the target point and entry point, draw the Fibonacci retracement line of the BC segment, find the 161.8% horizontal line as a basis, and draw the reversal zone (abbreviated as "prz")

The price fluctuations and time lengths of segments AB and CD are roughly equal, that is, AB=CD

About stop profit and stop loss

The profit target 1 is usually selected as: 0.382AD, and the profit target 2 is usually selected as 0.618AD

The stop loss is usually selected at 1.13DA or 1.272DA outside point D.

3. Draw the AB=CD pattern in the real market

Bullish [ABCD]

Bitcoin to USD 4-hour chart

EUR/JPY 1h chart

EUR/CHF 1-hour chart

Bearish [ABCD]

GBP/CAD daily chart

As can be seen from the above figure, by combining the AB=CD pattern with the Fibonacci retracement line, it is possible to find the next target profit and stop loss positions more clearly, which is very convenient for traders to use.

When talking to traders, some people said that AB=CD is an unstable pattern and is not suitable for small cycles. So you can try it and see when it is more useful. Welcome to leave a message to discuss.

The above is what I shared today. If you have gained something from this sharing, please like, forward and collect it! Follow [Paul Dahuige] to learn more trading knowledge and skills.