Harmonic Trading utilizes an enormous array of effective Fibonacci alignment combinations to define patterns. However, Harmonic Trading does not stop at the identification of valid patterns. Although it is the important first step in defining potential trading opportunities, specific rules and guidelines are required to maximize the management of a position. There is more to profiting from the patterns than just proper identification. The other aspects of trade execution and position management are equally as important to maximize profit potential and to scale back risk exposure:
- Trade Identification: Regardless of what sort of trading system is employed , the initial step is identifying a possible opportunity. Harmonic Trading techniques utilize historically proven and repetitive price patterns that maximize overbought and oversold signals generated by the market’s technical price action. A good portion of this material is dedicated to identifying and differentiating harmonic price patterns as quantified by Fibonacci ratio alignments. Understanding the differences among the varied harmonic patterns is important to maximize specific trading opportunities.
- Trade Execution: After accurately identifying a potential trade opportunity, the actual trade must be determined. Several considerations must be assessed within a selected period of time defined by the potential opportunity. The validity of the pattern must be determined, and therefore the final action of executing of the trade or not must be considered.
- Trade Management: After the execution action is set , there are a spread of general considerations involved within the trading process. If the trade was executed, the position must be managed with specific rules to maximise the profit while minimizing the danger .
These three stages are important to consider as the general process of trading harmonic patterns.