You are on page 1of 84

Harmonic Patterns

Purely Subjective Approach to Trading Elliott Waves


The presenter does not assume any responsibility whatsoever for the
actions of any person viewing or reading the contents of this
presentation. The presenter may or may not hold positions in the
financial instruments discussed.
Trading and investing involve high levels of risk. Future results can be
dramatically different from the opinions expressed in this course. Past
performance does not guarantee future performance.
This presentation is provided for informational and educational
purposes only and does not constitute any type of investment advice.
There are no implied guarantees for the accuracy of information or
warranties associated with any representations made in this
presentation and the presenter shall not be held liable for any
inaccurate or incomplete information or for any improper or incorrect
use of the information contained in this course.
Bio About Us
- Alex Bernal, CMT
- President & Chief Analyst Aether Analytic LLC.
- Quantitative Analyst and Trading Strategy Architect
- Previous Positions
- Bear Stearns, M&N Trading, Allston Trading
Aether Analytics Current and Past Client List Includes
- Goldman Sachs
- Gambit Trading
- Facet Capital Partners
- Breakwater
- Westridge Capital
- IB Group
- Obsidian Analytics
- Sardonyx Capital
- PCLA Group
- Ameriflex Financial
- Skylark Capital
- Lido Isle Advisors
- GTA Group
We believe that the structure of neighboring waves in price action tend to be
related by geometric & mathematical harmony And we also believe that
most financial systems have select moments within a regime that have very
high predictability.
Brief History of EW and Harmonic Patterns
HM Gartley RN Elliott Pesavento
Carney
Traditional Classic Elliott Wave Model
Copsey Modified Elliott Wave
Fractal Dimension
Universal Dogma 4 : The laws of nature are fixed. They are the same
today as they were at the beginning, and they will stay the same for
ever.
How to Find & Measure Harmonic Patterns
How to Find / Measure Harmonic Patterns
0.09 0.236 0.146
0.146 0.236 1.618
0.236 0.382 1.618
0.382 0.618 1.618
0.414
2.00 2 Sacred square
0.486 0.618 1.50
0.50 1 / root 4
0.557 Reciprocal of 1.732
0.618 1.00 1.618
0.685 0.618
(0.786)
0.707
2.00 2 - Sacred Cut
0.786 1 1.272
0.886
0.786
1.0 1.618 1.618
1.13
1.27
1.272
1.618
1.414
2.00 - Diagonal of a square
1.460 1.618
(0.786)
1.618 Phi Golden Ratio
1.732
3.00 - Diagonal of a cube
1.886
4.00
1.902 Diagonal of a Golden Rectangle
2.00
4.00
2.236
5.00 - Diagonal of two squares
2.618 1.618 1.618
3.14 Pi
3.33 2.618 1.272
4.236 2.618 1.618
6.854 4.236 1.618
Important Geometric Ratios - *Bryce Gilmore
ther Analytics
RISK MANAGEMENT
RISK MANAGEMENT
RISK MANAGEMENT
RISK MANAGEMENT
External Wave Structure
Focus Areas
Typical EW Trading Rules
Trading Wave 1 (end of wave C)
1. Enter in Wave 2 (of 1) after ABC Down Reaches 0.618% of 1.
2. Stop loss @ low of wave 1
3. Exit after 5 wave up (end of wave 1)
Problem Entering Counter Trend (fading) (low probability success)
Problem Stop loss is defined as price distance not volatility measure
Problem Risk Reward is not defined before trade is made
Problem No quantitative evidence to support thesis. Merely observational
Stop
Entry
A
B
C
1
2
1
Typical EW Trading Rules
Trading Wave 2 (end of wave 1)
1. NOT Recommend by most EW practitioners
2. Stop loss @ high of wave 1
3. Exit after ABC or 0.618% of wave 1
Problem Limited Profit potential since next wave (3) is expected to be bigger
opportunity
Problem Stop loss is defined as price distance not volatility measure
Problem No quantitative evidence to support thesis. Merely observational
1
2
Typical EW Trading Rules
Trading Wave 3 (end of wave 2)
1. Enter @ beginning of wave 3 (wave2 of wave 3)
Or
2. Enter @ breach of wave 1 High
3. Stop at Wave 2 low
4. Target is at least 1 : 1 Length of wave 1 (3 never shortest
Success Defines Risk Reward Before Trade
Success Trades With Trend (best wave to trade)
Success - Quantitative evidence to support this edge
Problem lose profit distance needed to confirm
1
2
Stop
Entry
Entry
Typical EW Trading Rules
Trading Wave 4 (end of wave 3)
1. 60% -70% of the life of Markets are consolidating
Problems Complexity, Rule Exceptions.
Problems No Definable Risk Reward
Problems Shorting against Strongest Wave (3)
Typical EW Trading Rules
Trading Wave 5 (end of wave 4)
1. (after ABC) by at 2 of 5.
2. Stop loss @ low of 4C
3. Exit after 5 waves complete 5
th
()
Problem pinpointing the end of a complex wave 4 is very difficult (whipsaws)
Problem No specific profit objective (wave 5s often can be 3 waves)
Problem Theoretically buying end of trend move
Success In ideal wave, can be profitable
2
4
3
1
Entry
Entry
Stop
C
B
A
Typical EW Trading Rules
Trading Wave A (end of wave 5)
1. Enter when wave 5 = length of wave 1
or.
2. Enter on breach of wave 4 of the 5
th
wave.
3. Stop loss @ high of wave 5 or undefined
4. Exit after 3 waves to complete ABC
Problem pinpointing the end of a complex wave 4 is very difficult (whipsaws)
Problem No specific profit objective (wave 5s often can be 3 waves)
Problem Theoretically buying end of trend move
Success Large Profit Potential
Success Quantitative evidence
2
4
3
1
Entry
Stop
C
B
A
3
4
5
5
Typical EW Trading Rules
Trading Wave B (end of wave A)
1. NOT Recommend by most EW practitioners
2. Stop loss @ low of wave 1
3. Exit after 5 wave up (end of wave 1)
Problem Same Complexity problems as wave 4
Problem Limited profit potential (buying the last gasp)
Problem little quantitative evidence
Stop
Entry
A
B
C
A
B
B
5
A
C
Typical EW Trading Rules
Trading Wave C (end of wave B)
1. Enter on wave 2 or breach of wave 1 after ABC
2. Stop loss @ C
3. Exit after C completes ABC or length ratio to A
Success Defined Risk Vs Reward
Success First macro opportunity to enter new trend with lower risk
Success Strong quantitative evidence of edge
Problem Loss of distance to confirm
Stop
Entries
A
B
C
A
B
B
5
A
C
2
1
Typical Elliott Wave Rules Problems (Personal opinion based on AE research)
1. Arguably SUBJECTIVE process due TO THE ANALYSTs interpretation of complex rule
set (Linear based thinking on a non-linear dataset)
Rules too rigid and No consistent rules for exceptions
Subject to constant reinterpretation : If they cant find waves they look backwards
and recount. Discrediting all work up to that point. .just kidding moments
Much evidence to disconfirm rules
2. MULITPLE Counts?! backup counts to continue to be RIGHT
3. Ratio Lengths have too much leeway (Sometimes, typically, oftenfibs. etc)
4. Difficult to define RISK / Reward in certain scenarios
5. Little Quantitative / statistical evidence of a definable edge : Still a Theory
Harmonics Isolation Approach
1. Does not Aim to explain all markets or human behavior. When approached with a
Chaos Theory / Complexity Theory Foundation allows for unlimited possibility.
2. Only 1 OBJECTIVE count or definitive rules on each patterns ratios and turning
points
Creates Binary Decision Tree (true, false)
3. Compliments the Aims of trading with Elliott Wave (Waves, 2, 5, B favored)
4. Risk management built into the structures (Clear Risk Reward)
5. Patterns also prove to work without consideration of overall EW count
6. STRONG QUANTATTIVE / statistical evidence of a definable edge : Provable System
Section 2
Advanced Analysis
of
Harmonic Patterns
Structure Ranking
External Vs Internal
Internal
What is going on Inside the pattern.
Specific price / volume behavior on
each leg
Angle & Ratio Measurement of Cross
Angles
Time Symmetry
External
Where the pattern is appearing in
context of larger term trend
What type of wave structure terminates
at X point
Does X confirm in a high probability
mean reversion zone. *Median Absolute
Deviation
Internal Angles
ther Analytics
Too Obtuse?
Too Acute?
ABC : XBD Angle Ratio
ABC
XBD
A
C
B
X
Cross Angle & Length Ratio Measurement
ther Analytics
D
Harmonic Time Analysis
Time Ratios Detailed Structure
ther Analytics
Indicators in Harmonic Trading
Focus on only Non- Linear Indicators
.The problem with virtually all indicators is that they are causal. That
means they directly depend on data for their computation and signaling.
As a result, the computation cannot be accomplished until after the data
arrives, and - as a result - all causal indicators have lag DR Ehlers
PRICE ALMOST ALWAYS LEADS INDICATORS, BUT PREDICTIVE INDICATORS
DO EXIST
Focus only on Very Low or Zero Lag predictive functions
Assistance in execution Quantitative Signaling & Confirming Reversal
Assistance in measuring momentum Fractal Dimension and time & price
deceleration
Assistance in measuring trend continuation Regime Monitoring
- *Most Smoothing Adds Lag
All time
frames
% Failure Rate Per Tier of Pattern Rank
Pattern
Type
# found NO
Ranking
Below 25% 25%-75% Above 75% 95%+
Gartley 200,173 16% 14.48% 8.84% 5.59% 3%
Butterfly 215,616 19.5% 16.21% 7.54% 4.25% 2.58%
Crab 298,455 24.01% 20.59% 16.58% 8.59% 3.56%
Deep Crab 164,589 26.05% 22.05% 17.21% 9.59% 3.86%
Bat 189,584 17.89% 12.47% 7.68% 3.99% 2.52%
Cypher 226,458 17.25% 11.89% 6.45% 3.45% 1.97%
Shark 152,484 28.54% 21.22% 15.33% 8.87% 4.01%
5-0 176,548 22.25% 16.48% 11.85% 5.58% 3.39%
Sample Data set : Minimum 4 Years Tick Data 2013 Updated
Success Defined as a % of patterns that reached target 1 or Moved Enough
ATR to adjust stop to breakeven
Sample Statistical Study
Harmonic System Backtest Performance
Futures & Forex Only
In Sample Period 2000-2013
Forward Test Period (Tracked Live Trades) Apr 2013 - Present
Profit Factor 2.50
Percent Profitable 54.18%
Sharp 0.68
Expectancy 0.5571
Average DD 8.177%
Return 54.18%
Max DD 21.70%
* Past results are no indicative of future performance
Harmonic System Performance
Takeaways
Markets are provably Chaotic Systems. Constantly moving across the
path of least resistance in repeating fractals. Always moving from a
regime of a balanced state to trending state.
We can measure these market regimes with non-linear based models.
Hurst Exponent & Fractal Dimension
Harmonic Pattern trading adds an objective systematic approach to
trading subjective Elliott Wave Patterns or forecasts.
Not all harmonic patterns carry the same probability of success
Analysis of internal & external important
MOST TECHNICAL INDICATORS HAVE PROVABLY LOW OR ZERO EDGE
Contact Info
Alex @ AetherAnalytics.com
Twitter : @interestratearb
AetherAnalytics.com
Skype : alexbernal0
Old Reports
Old Newsletter User Guide
In Development : Automatic pattern scanner, Automatic trading algo
Launching Today
A weekly newsletter to help you find harmonic patterns
Charting strategy update blog
Strategy update blog
Premium: Instant trade alerts and portfolio access
Launch Day Special
Aether Analytics - Harmonic Patterns
52 weeks of the Harmonic Patterns newsletter
Weekly blog posts with harmonic pattern strategy
updates
Bonus! 10 days of access to Alex Bernals instant trade
alerts
24/7 access to message Alex with questions
30-day money back guarantee
vip.marketfy.com/HARMONIC
1877440-9464
Full price: $97
Today Only: $47/ 12 months
51% Off!
Quick Pattern Reference Guide
A
C
B
D
X
Target 1
0.618 0.786 of XA
Target 2
1.272 1.618 of XA
Ideal Bullish Gartley
0.786
PRZ
ther Analytics
A
C
B
D
X
Target 1
0.618 0.786 of XA
Target 2
1.272 1.618 of XA
Ideal Bullish Gartley
0.786
PRZ
ther Analytics
A
C
B
D
X
Target 1
0.618 0.786 of XA
Target 2
1.272 1.618 of XA
Bullish Gartley
0.707
0.786
0.886
PRZ
ther Analytics
A
C
B
D
X
Target 1
0.618 0.786 of XA
Target 2
1.272 1.618 of XA
Bullish Gartley
ther Analytics
0.707
0.786
0.886
PRZ
A
C
B
D
X
Target 1
0.618 0.786 of XA
Target 2
1.272 1.618 of XA
Ideal Bullish Butterfly
1.13
1.272
1.618
PRZ
ther Analytics
A
C
B
D
X
Target 1
0.618 0.786 of XA
Target 2
1.272 1.618 of XA
Ideal Bullish Butterfly
ther Analytics
1.13
1.272
1.618
A
C
B
D
X
Target 1
0.618 0.786 of XA
Target 2
1.272 1.618 of XA
Bullish Butterfly
1.13
1.272
1.618
PRZ
ther Analytics
A
C
B
D
X
Target 1
0.618 0.786 of XA
Target 2
1.272 1.618 of XA
Ideal Bullish Butterfly
ther Analytics
1.13
1.272
1.618
A
C
B
D
X
Target 1
0.618 0.786 of XA
Target 2
1.272 1.618 of XA
Bullish Gar-fly
1.13
1.272
1.382
PRZ
ther Analytics
A
C
B
D
X
Target 1
0.618 0.786 of XA
Target 2
1.272 1.618 of XA
Bearish Gar-fly
ther Analytics
1.13
1.272
1.618
A
C
B
D
X
Target 1
0.618 0.786 of XA
Target 2
1.272 1.618 of XA
Ideal Bullish Bat
0.886
PRZ
ther Analytics
A
C
B
D
X
Target 1
0.618 0.786 of XA
Target 2
1.272 1.618 of XA
Ideal Bearish Bat
ther Analytics
0.886
PRZ
A
C
B
D
X
Target 1
0.618 0.786 of XA
Target 2
1.272 1.618 of XA
Bullish Bat
0.886 PRZ
ther Analytics
A
C
B
D
X
Target 1
0.618 0.786 of XA
Target 2
1.272 1.618 of XA
Bearish Bat
ther Analytics
0.886
PRZ
A
C
B
D
X
Target 1
0.618 0.786 of XA
Target 2
1.272 1.618 of XA
Alternate Bullish Bat
PRZ
1.00
1.13
1.272
ther Analytics
A
C
B
D
X
Target 1
0.618 0.786 of XA
Target 2
1.272 1.618 of XA
Alternate Bearish Bat
ther Analytics
PRZ
1.00
1.13
1.272
A
C
B
D
X
Target 1
0.618 0.786 of CD
Target 2
1.272 1.618 of CD
Bullish Deep Crab
PRZ
1.50
1.618
1.786
ther Analytics
A
C
B
D
X
Target 1
0.618 0.786 of CD
Target 2
1.272 1.618 of CD
Bearish Deep Crab
ther Analytics
PRZ
1.786
1.618
1.50
A
C
B
D
X
Target 1
0.618 0.786 of CD
Target 2
1.272 1.618 of CD
Bullish Crab
1.50
1.618
1.786
ther Analytics
A
C
B
D
X
Target 1
0.618 0.786 of CD
Target 2
1.272 1.618 of CD
Bearish Crab
ther Analytics
PRZ
1.786
1.618
1.50
A
C
B
D
X
Target 1
0.618 0.786 of XC
Target 2
1.272 1.618 of XC
Bullish Cypher
PRZ
1.04
0.786
0.886
ther Analytics
D
Target 1
0.618 0.786 of CD
Target 2
1.272 1.618 of CD
Bearish Cypher
ther Analytics
PRZ
1.786
1.618
1.50
A
C
B
X
A
C
B
D
X
Target 1
0.618 0.786 of CD
Target 2
1.272 1.618 of CD
Bullish Shark
PRZ
1.13
1.272
1.382
ther Analytics
D
Target 1
0.618 0.786 of CD
Target 2
1.272 1.618 of CD
Bearish Shark
ther Analytics
PRZ
1.382
1.272
1.13
A
C
B
X
1
Buy Stop to Entry
Bullish Three Drive Wolfe Wave
3
2
A
B
Target 2
1.272 -1.618 A3
ther Analytics
1
Sell Stop to Entry
Bullish Three Drive Wolfe Wave
3
2
A
B
Target 2
1.272 -1.618 A3
ther Analytics
X
Bullish 5-0 Pattern
D
B
A
C
Target
1.00 -1.618 BC
ther Analytics
X
Bearish 5-0 Pattern
D
B
A
C
Target
1.00 -1.618 BC
ther Analytics
Complex Harmonic Patterns
&
Misc. Wave Fractals
A
C
B
D
X
Kane Pattern
ther Analytics
Target 1
B - Point
Bullish Crown Pattern
G
A
B
Target 2
1.272 -1.618 BC
C
E
D
F
X
1.00
ther Analytics
Target 1
B - Point
Bullish Crown Pattern
G
A
B
Target 2
1.272 -1.618 BC
C
E
D
F
X
1.00
ther Analytics
A
C
B
D
X
Length of A-D = 0.5 * BC
= 0.618 * BC
= 0.786 * BC
= 0.707 (sometimes)
* Price & Time Symmetry
Gilmore False Breakout
Continuation
Cypher Symmetry
ther Analytics
A
C
B
D
X
Length of X-C = Length of A - D
* Price & Time Symmetry
Gilmore Double Cross
Shark Symmetry
ther Analytics