Unless traders draw correct trend lines, these markings on charts can be as meaningless to a trader as a spider crawling across a screen.
Without being drawn in properly, they can tell us nothing about where price might be expected to move.
Traders use trend lines to establish points, much like train tracks, that house a stair-step arrangement of price movement, often called a channel or a range. Price will sometimes bounce in between these train tracks and they can be useful when gauging where to place stops or to get a general feel of where price may turn.
Gartley patterns are best suited to channels, while other Harmonic patterns such as the Butterfly, the Bat and the Crab are more often found in ranges.
How To Draw Trendlines
The best way to draw trend lines is to identify where most of the candlesticks touch your drawn in line. They are not drawn at the point of wicks; they are drawn in on the edge of the ‘real body’ of the candlesticks. Using Harmonic Pattern Trading, trend lines will not tell you where or when to enter the market. They will not tell you where to exit a trade. They will merely give an overview of where price may be likely to ricochet.
Trend Lines in a Non-Linear Market
You will need to understand the reason we draw trend lines the way we do. This all goes back to the fact that the market is not linear. A non-linear market cannot have straight lines because the market is not linear. We have to draw our lines through the area most candle sticks touch because support and resistance of a trend or range is exactly this… an area. It’s not a specific price point but a cluster or range of prices. If we were able to draw non-linear fractal lines, then maybe we could be more specific. This is one of the major reasons why most new traders fail; they believe that a trend line is drawn in stone and that a pip here or there can mean a validation or invalidation of a trend. Next time don’t be so quick to judge as you can see in the examples of the pictures on the page.
Images Can Tell A Thousand Words!
Figure on page 10 can show us a good example of how trend lines should be drawn. Remember, you’re looking at where most of the candle sticks are meeting our drawn in line (yellow), marking the rising channel trend line. The Figure on page 11 is a little more complex. It shows us the rising channel (purple lines) and the ranging yellow lines. Again, where most of the real bodies of the candles touch the channel/trend/range lines.
Harmonic Trading in General
Harmonic Pattern Trading has proven to be one of the most probable methods of netting pips when trading the Forex, or when trading stocks or futures. The principles for using Harmonic Patterns to trade all of these types of commodities remain the same. Once you learn the method, it can be applied to any or all of these categories.
Keep your eye on the educational site FXGroundworks.com who will soon be providing Harmonic Pattern alerts to stocks and futures as well as their current offering of Forex trading alerts.