Why Harmonic Trading WorksForex Trading August 7, 2016
Harmonic trading is a technical analysis method, that is constructed of clear, specific and exact price patterns governed by Fibonacci ratios. It is one of the most precise and detailed technical trading methods ever developed. So why does harmonic trading work? It was originally thought that the world was made up of completely random elements until mathematics proved this inaccurate. Fibonacci found that nature, space, and the human body follow a pattern of numbers and ratio which he termed the Fibonacci Sequence. This sequence is ever present in financial markets and allows us to predict market movements with calculated precision. Harmonic trading uses these repeatable number and ratios to find patterns with high probabilities for success. However, there is another more practical and specific reason why harmonic trading works more effectively. This is due to the conscious and purposeful use of Fibonacci ratios by traders. Price only moves when traders either buy or sell a financial instrument. The more people buy the prices will continue to rise. Conversely, the more people sell the prices will fall. Price continues to move in one direction until a group of traders on the other side of the trade enter the market. This is the logic behind all technical analysis and the reason why it works. The goal of all technical methods is identifying price levels where it’s likely people will enter the market. This flood of orders at a particular price causes reversals that technical analysts call support and resistance. Harmonic trading seeks to find areas where a convergence of Fibonacci levels is found within a tight range. This allows more people will enter at that exact price rather than where no harmonic pattern is in place or convergence of Fibonacci level. This is a significant advantage that harmonic patterns provides over other methods of trading.