Metatrader (MT4/MT5) Indicator
"Harmonic Trading profits from the natural order of the financial markets."- Scott M. Carney
Are you an harmonic trader? The PZ Harmonic Trading indicator is probably the most complete harmonic patterns auto-recognition indicator, and takes fibonacci projections as seriously as you do.
- Detects Bat, Gartley, Crab, Butterfly, Cypher and Shark patterns
- It plots primary, derived and complementary Fibonacci projections
- It evaluates past price action and displays every past pattern
- It plots all the pattern ratios on the chart
Inspired by Scott M. Carney's book "Harmonic Trading Vol. 1", this indicator has been designed to fulfill the needs of the most purist and exigent harmonic traders.
- Fibonacci projections are vector-independent
- It implements email/sound/push alerts
- It plots the AB=CD projection
Enhance your trading activity with the best Harmonic Patterns auto-detection indicator, just like our customers have already done.
- Lifetime software updates and support
- Current version is 1.0 (Updated November 2013)
Who is this tool for?
The PZ Harmonic Trading indicator has been crafted for educated harmonic traders who are looking for a top-notch indicator, and are tired of useless "fancy triangles" indicators.
What this tool is not
This indicator is not suitable for uneducated traders, or those who don't know what harmonic trading is. It is not a trading system nor a signals indicator. What is harmonic trading?
How to trade
A brief introduction
Harmonic Trading is a methodology that utilizes the recognition of specific price patterns and the alignment of exact Fibonacci ratios to determine highly probable reversal points in the financial markets. This methodology assumes that trading patterns or cycles, like many patterns and cycles in life, repeat themselves. The key is to identify these patterns, and to enter or to exit a position based upon a high degree of probability that the same historic price action will occur. Although these patterns are not 100% accurate, these situations have been historically proven. If these set-ups are identified correctly, it is possible to identify significant opportunities with a very limited risk.
The Potential Reversal Zone (PRZ)
The concept of the Potential Reversal Zone (PRZ) was originally outlined by Scott M. Carney in his book, "The Harmonic Trader".
History has proven that a convergence of Fibonacci numbers and price patterns provides a highly probable area for a reversal. This area of convergence is called the potential reversal zone. When three, four, or even five numbers come together within a specific area, you must respect the high probability for some type of reversal.
A Potential Reversal Zone (PRZ) represents the critical areas where the flow of buying and selling is potentially changing. These harmonic zones attempt to identify the price levels where imbalanced overbought and oversold situations are reversing back to their respective equilibrium level.
An ideal reversal usually tests all of the price levels in the Potential Reversal Zone (PRZ) on the initial test. The predominant trend usually reverses from this initial test of the entire PRZ and continues in the reversal direction shortly thereafter. In an ideal reversal, the price bar that tests all of the fibonacci projections in the PRZ is called the Terminal Price Bar.
The trade must be taken when the Potential Reversal Zone (PRZ) has been tested and rejected by a Terminal Price Bar or a strong breakout has taken place in the reversal direction without testing all the PRZ levels. The farthest price level of the PRZ or the Point X of the pattern are suitable stop-loss levels.
Harmonic Trading Ratios
The indicator calculates all the important fibonacci ratios for the XA and BC vectors of the pattern, and plots them by the Point D if applicable.
- Primary Ratios
- Directly derived from the Fibonnaci Number Sequence.
- 0.618 = Primary Ratio
- 1.618 = Primary Projection
- Primary Derived Ratios
- - 0.786 = Square root of 0.618
- 0.886 = Fourth roof of 0.618 or Square root of 0.786
- 1.130 = Fourth root of 1.618 or Square root of 1.27
- 1.270 = Square root of 1.618
- Complementary Derived Ratios
- - 0.382 = (1 - 0.618) or 0.618²
- 0.500 = 0.770²
- 0.707 = Square root of 0.50
- 1.410 = Square root of 2.0
- 2.000 = 1 + 1
- 2.240 = Square root of 5
- 2.618 = 1.618²
- 3.141 = Pi
- 3.618 = 1 + 2.618
Watch the video!
Take a look at the video in which I explain how does the indicator work, how to use it, what makes it especial and how properly identify potential reversal zones.
Once a pattern is detected, the following steps have to be taken, which can lead to take or discard the trade. Bear in mind that a pattern is not valid by itself and it can expand as long as it likes. Your job has an harmonic trader is to assess the validity of the pattern and the potential reversal zone before entering the market.
- 1. Pattern Recognition
- This indicator auto-detects and alerts harmonic patterns.
- 2. Find the Potential Reversal Zone (PRZ)
- Evaluate the fibonacci projections plotted on the chart by the indicator and look for strength signs. Can you find at least three converging projections? Do you see primary ratios? Is the AB=CD projection present?
- 3. Wait until the PRZ is rejected by the market
- The PRZ can be tested and rejected by one single Terminal Price Bar, or the market can reverse and breakout the PRZ without testing all the fibonacci projections. In any case, the market has to move before you take the trade. You are a follower, not a predictor.
- 4. Enter the market setting the proper stop-loss
- Trade the breakout or the rejection of the PRZ and set the proper stop-loss. The farthest price level of the PRZ or the Point X of the pattern are suitable stop-loss levels.
- 5. Position Management
- It is recommended to reap partial profits as soon as possible to lock into a free ride. Scott M. Carney proposes a very interesting position management system based on a 0.382 Trailing Stop, measured from the reversal point to the reversal extreme.
The Potential Reversal Zone (PRZ) is a crucial element in Harmonic Trading. Hence the importance of vector-independent primary, derived and complementary fibonacci projections, which all other harmonic indicators ignore completely.
Some trading examples
The following are trading examples using Harmonic Patterns. The trade is taken when the Potential Reversal Zone (PRZ) is rejected.
The indicator parameters
When loading the indicator to any chart, you will be presented with a set of options as input parameters. Don't despair if you think they are too many, because parameters are grouped into self-explanatory blocks.
- Indicator Settings
- The indicator is constantly looking for tops and bottoms. The amplitude is the minimal amount of bars where there will not be two tops or two bottoms. Increase the period to see bigger patterns or for intraday trading. Enable OnlyPerfectPatterns to display only perfect and pure harmonic patterns, with perfect ratio measurements. The MaxHistoryBars parameter controls how many past bars are examined to minimize memory usage.
- Choose your own pattern colors.
- Enable or disable labels and choose your own label color.
- Enable or disable ratios and choose your own ratio color.
- Display or hide the fibonacci projections on the chart
- Enable display/email/push/sound alerts for patterns.
How to read data from the Indicator
In order to build an expert advisor, you can read data from the indicator using the iCustom() function as exemplified below.