Harmonic Course

Harmonic Patterns
MODULE 1 FIBONACCI OVERTURE
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Harmonics - Introduction
Welcome to the Harmonic Patterns Training Module 1
Over 30 years trading Forex, Futures and Options using Elliott Wave Analysis
The Wavy Tunnel is one of the best Fibonacci and Elliott Wave based Trading Systems
This System, when combined with Harmonics Patterns, creates very precise high probability
trade setups
This training program will combine Elliott Wave and Harmonic Setups and tie it all together with
the Wavy Tunnel PLUS

Sections
The Course Outline
Section I: Elliott Wave Series

Elliott Wave Section II: Wavy Tunnel PLUS
Ultimate Section III: Fibonacci Primer

Section IV: Harmonic Patterns

Modules
Elliott Wave Ultimate Course: Section IV
Module 1: Fibonacci Overture

Module 2: Harmonic Chord AB=CD
Harmonic Patterns:
Module 3: The Retracement Pattern Quartet
Become a Conductor! Module 4: The Extension Pattern Suite
Module 5: Wavy Tunnel PLUS Orchestra
Module 6: Case Study Triad

Welcome to Module 1
Harmonic Patterns: Fibonacci Overture
The Chart is the Roadmap

Module 1 Harmonic Patterns with Elliott Waves
Learning Objects NEW Convergence Zone Methodology
Key Fibonacci Ratios
.618, .786, 1.272, and 1.618
Complementary Fibonacci Ratios
Retracement and Projection Ratios
Ratio Inverses

Introduction
Objectives
1. Understand the background behind Harmonic Patterns

2. Revisit Fibonacci in the context of the FIBO relationships in Harmonic Patterns
3. Introduce a NEW Methodology for creating Fibonacci Convergence Zones
4. Begin picturing yourself Riding the Waves and Cashing in on Profits using the
Wavy Tunnel with Harmonics

Trading Market Cycles
Technical Analysis Training

1. In technical analysis training courses you learn to identify trends and sideways markets
2. Trend and Sideways markets comprise the market cycles and require different strategies
and mindsets to trade
3. Once the cycle is identified, the trader learns which strategies to use to trade each cycle
4. The analysis tools learned are combined to create high probability trading strategies
5. But without Elliott Wave Analysis and Harmonics traders do not have the complete
picture yet

Trading Market Cycles
The Elliott Wave Modules and The Wavy Tunnel

1. In The Elliott Wave Modules, we label these cycles and call them waves and sub-waves
2. We learn how to find the End of the Trend, and what a Trend, Correction and Reversal
Pattern truly means in the context of the big picture
3. Finally, we bring it all together and introduce a powerful trading strategy which
addresses all market cycles the WAVY TUNNEL
4. Once we learn how Harmonic Patterns complement Elliott Wave Analysis, we will then
revisit The Wavy Tunnel to tie it all together

Market Cycle
Fibonacci Expansion and Contraction in Markets

Harmonic Patterns - Introduction

The Chart is a Roadmap
Pattern Recognition offers high probability opportunities
Elliott Wave Analysis and Fibonacci methods are based on ratio and proportion
Harmonics is complementary because it too, is based on ratio and proportion
When you learn all three methods, you get a very powerful combination!


Markets have patterns amidst the chaos
Harmonic Trading is based on Fibonacci relationships evident in natural and universal growth
cycles, including the markets
Price action moves in cycles that expand and contract
With Elliott and Harmonics, using Fibonacci relationships, we learn to quantify market
movements that will assist in our trading

Harmonic Patterns provide a precise Reversal Zone for the Price Action
We call this Reversal Zone the Convergence Zone
These Harmonic Patterns repeat over and over again because markets are fractal
Learn the Patterns and understand the precise Fibonacci relationships
Apply these tools to find High Probability Trade Setups
Lets integrate Elliott with Fibonacci and Harmonic Patterns and overlay it with the Wavy Tunnel
Trade Setups!

Harmonic Patterns versus Elliott Wave Analysis

Harmonics with Elliott Wave Analysis when combined, filter out the low probability trades
Fortifies the entry point and helps to eliminate whipsaw price action
Each Harmonic Pattern possesses a strict Fibonacci structure that cannot be violated
The Harmonic nomenclature is different from Elliott Wave nomenclature
Elliott Wave Analysis provides a Roadmap that we can fit the Harmonic Patterns into!

Convergence Zones
Convergence Zones Provide an Area of Confluence or Convergence

Scott Carney calls the Potential Reversal Zones PRZs we are going to call these zones
Convergence Zones (CZs)
Elliott wave targets, Wavy Tunnel setups and Harmonic Patterns, when combined, provide a
strong reversal area for price
Price range where 3-5 calculated Fibonacci ratios congregate
Watch Reversal Candlestick patterns, the 123 Reversal and Awesome Oscillator divergence too

Convergence Zones
Examine the Price Action in the Convergence Zone

Critical to look at price action in the Convergence Zone
Small bodied candlesticks might be needed before that actual reversal
Reversal patterns such shooting star or engulfing pattern might set off the reversal
Trade confirmation will come from the Wavy Tunnel BO-1 trade on a smaller time frame
Once the Wavy Tunnel setups are mastered to validate the Harmonic Pattern, low probability
trades will be filtered out!

Fibonacci Grid
Fibonacci Sequence Revisited
Theoretical Fibonacci
The Nautilus sea shell is pictured on Squares
the right
55
The Fibonacci sequence is behind this 3 2
simple logarithmic growth spiral 1 1
The Fibonacci mathematical model is

8
represented by the grid to the right 21
5
13

Fibonacci Grid
Compare the theoretical Fibonacci squares

to the Nautilus sea shell,
55
Sea shell is not a perfect representation of
the mathematical model
Tracks the model up until 21 units of length 8

21
and then it has a contracting growth cycle
13

Fibonacci Grid
5
The markets react in the same way that nature does
B
3
Both are directly related to the Fibonacci sequence
and the ratios produced
A
Markets experience symmetry, expansion and 4
contraction just like in nature 1
C

Fibonacci Grid

5
The market cycles all have different characteristics as

B
we learned studying the Elliott Wave Cycles 3
Some of the waves expand and others contract

A
The perfect 8-wave cycle is almost symmetrical 4
1
C

Fibonacci Grid

5
Where do you place the Fibonacci tool on the
swing moves to see the proper retracements? B
3
By understanding the expansion and contraction

nature of market cycles, one quickly sees that the
theoretical Fibonacci model needs to be adjusted A
4
1
C

Fibonacci Expansion Targets
Fibonacci Ratios Revisited
In this example, use the Fibonacci

expansion tool which first measures the
length from start to end
Then project the .618, 1.0, and 1.618

ratios from the retracement level noted in
the chart, B and 2

Fibonacci Expansion Targets
Fibonacci Ratios Revisited
Major and Minor Target Areas
The major target areas are 1.0 and 1.618
Minor target areas are .618, 1.272 and 1.382

Fibonacci Convergence
Convergence Zones
Convergence (also called Confluence) is made from different

Fibonacci ratios
Most common retracement ratios are 38.2%, 50% and 61.8%
Look for repeated overlap of different Fibonacci ratios in the same

area of chart

By measuring the FIB retracement of 3 different Elliott Wave

sequences, we are able to find confluence or convergence
zones to the right for subsequent price action
Waves (A)(B)(C)
Waves 1-5 of (C)
Wave 3
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Wave 3 Convergence Zones
Find meaningful ranges that can be subdivided
Subdivide the entire wave 3 as well as internal wave 3 of 3
Use the Fibonacci retracement tool
Use the Elliott Wave target for wave 4 which states that the wave 4 target is the
price territory of the previous wave 4

Candlesticks and Fibonacci

Should One Use the Entire Candlestick or Just the Bodies?
Use the real bodies to start and end a price range to create the Fibonacci grid
structure to find confluence zones
At the end of a trend, you will see shooting stars at market tops and hammers at
market bottoms
Leave off the tails and start with the bodies when constructing the Fibonacci grid for
confluence zones

Fibonacci Tool
Variations When Using the Fibonacci Tool
Triangles and Ending Diagonals
Triangles: Review Module 3 of the Elliott Wave Series
Once price thrusts out of the triangle, expect a resolution to the trend and a reversal

Fibonacci Tool
Variations When Using the Fibonacci Tool
Triangles and Ending Diagonals
Ending Diagonals: Review Module 2 of the Elliott Wave Series
Connect the tops and bottoms and make sure all swing moves within are 3 waves each
Buy close to the supporting trend line in the case of an uptrend
Once the ending diagonal is complete, the retracement should come back to the
starting point of the ending diagonal

Fibonacci Tool
How To Use Fibonacci Analysis to Project Future Price Highs in a Developing

Market Rally?
Use the Fibonacci Expansion Tool
Expansion phase or contraction phase?
Rule of Thumb: For Waves 3 or C, assume the market is in an expansion phase
For a wave 5, if wave 3 is extended, assume the market is in a contraction phase


Definition and Methodology
1. First, draw horizontal lines that capture key pivot levels use Elliott wave cycle highs
and lows at the beginning and ends of waves
Draw horizontal lines capturing Point 0, Wave 1, Wave 2, Wave 3, Wave 4 and
Wave 5
Look to the right to see how future price action for the correction respects prior
support and resistance
2. Use the FIBO retracement tool on 2-3 prior swings and see where there is Fibonacci
overlap with the manually drawn horizontal lines
3. Then, draw a Fibonacci Channel connecting 3 points beginning the corrective move

1. Horizontal Lines Capturing Key Elliott Wave Cycle Highs and Lows
2. FIBO Retracement Tool on 2-3 Prior Swings

Waves (A)(B)(C)
Waves 1-5 of (C)
Wave 3
Both Combined for Convergence

Waves (A)(B)(C)
Waves 1-5 of (C)
Wave 3
3. Fibonacci Channel Compared to Horizontal Manual Lines Drawn
3. Fibonacci Channel Compared to Horizontal Manual Lines Drawn
Summary: Fibonacci Convergence Using Elliott Waves

1. Draw horizontal lines that capture key Elliott Wave Cycle Pivot Points
2. Use the FIBO retracement tool on 2-3 prior swings and see where there is Fibonacci
overlap
3. Before drawing the Fibonacci Channel, you must find 3 points to start
Make sure the horizontal pivot lines, the Fibonacci retracements and the channel lines
converge at key levels
Use 2 together or 3 together but charts can get messy
Important for finding key support and resistance during corrective cycle or next trend
cycle very powerful!

Fibonacci Channels on 5-wave Sequence

Fibonacci Channels with Oscillator Divergence and Trend Line Break
When you target a move within the channel using Elliott Wave and Fibonacci, and price
reaches the target, it is time to then look for Awesome Oscillator divergence
Remember the Wave Extension Elliott Wave tips
If the move is 5 waves and price takes out the high above wave 5, start counting to 9
waves, then 13 waves, 17 waves, and 21 waves

Trend Line Break
Fibonacci Channels
Fibonacci Channels with Oscillator Divergence and Trend Line Break
Bungee: Use this oscillator combination at support and resistance areas
Awesome Oscillator: Look for divergence in the Awesome Oscillator at the end of the trend
confirmed with price targets
Wavy Tunnel: Observe how the Wave and Tunnel fit in with the channels

Bungee: Yellow line above 50%

After Trend Line Break
Trend Line Break
Fibonacci and Harmonics
The Chart is a Roadmap which a trader learns to follow in order to take trades
Both the Elliott Wave Analysis and the Fibonacci methods learned in this course
were based on ratio and proportion
Adding Harmonics is complementary because it too, is based on ratio and

proportion
Now, onto Harmonic patterns

RATIO Square Root Source 1/RATIO = Reciprocal
1 Square root of 1 1/1= 1
1.272 Square root of 1.618 1/1.272 = .786
1.414 Square root of 2 1/1.414 = .707
1.618 Phi 1/1.618 = .618
1.732 Square root of 3 1/1.732 = .577
2.000 Square root of 4 = .5
2.236 Square root of 5 1/2.236 = .447

Harmonic Definition: Market Expansion Market Expansion

1. MUSIC Uptrend Downtrend
HH
an overtone accompanying a fundamental
tone at a fixed interval, produced by vibration LH
HH
of a string, column of air, etc. in an exact LH
fraction of its length. HH
LL
2. PHYSICS HL
LL
a component frequency of an oscillation or HL
wave. LL
Markets Vibrate at Certain Harmonic

Frequencies: Market Contraction
Move up, down or sideways Sideways
Expand or contract

Key Fibonacci Ratios - .618 Retracement
The Bullish .618 Retracement

B retraces .618 times the length of XA
B is characterized as a sharp pullback from A
Observe the price action at B for reversal candlesticks
Look to BUY B Calculation Example:
A = 10
1. Subtract Price Low at X
from Price High at A (10-
5=5)
2. Multiply .618 times the
difference (5 * .618 = 3.09)
3. Subtract 3.09 from price
B = 6.91
high of 10 to get point B
price (10-3.09=6.91)
X=5

The Bullish .786 Retracement

.786 is the square root of .618
.786 is the next line of defense for a market
reversal before price corrects 100%
Calculation Example:
A
from Price High at A
difference
3. Subtract this number
from price high at A to get
B
point B price
X

Key Fibonacci Ratios - .618/.786 Retracement
A
Notice the close proximity to the Test 1
61.8% retracement level
The S&P retraced about 61.8% on

the first test and then rolled over Test 2
to test the 78.6% before moving up
again
B
X
Price bounces off 78.6%

retracement after a 3-
wave correction and
resumes the uptrend
Notice the 61.8% and
78.6% stopping points
BUY on along the way
candle close
Price doesnt even pause
which shows the strength
78.6% of this impulsive move
The Bearish .618 Retracement

Look to SELL B
X
B 1. Subtract Price Low at A
from Price High at X
difference
3. Add this number to
price low at A to get point
B price
A

The Bearish .786 Retracement

Fibonacci Traders will look to SELL B
In Harmonics, the XA and AB legs are half the pattern Calculation Example:
X
B 1. Subtract Price Low at A
difference
B price
A
X Notice the price action before the

61.8% retracement. Price travels in
an Elliott Wave 3-wave ABC fashion
B
Wave C 61.8%
Wave A
An intermediate stopping point

for Wave B is 78.6% times Wave A Wave B
A
X
The 78.6% held
nicely at strong 78.6%
resistance with B
good time
symmetry as
well
Price paced
itself without
moving very
quickly towards
the price zone A
Key Fibonacci Ratios 1.272 Projection
The Bullish 1.272 Projection

When the market makes a new low below point X, the 1.272 projection is the first
level to examine for taking profits or looking for a reversal
1.272 is the square root of 1.618 and the reciprocal of .786.
Fibonacci Traders will look to BUY B or cover if short.
A Calculation Example:

2. Multiply 1.272 times the
difference
X
B
point B price

After retracing 78.6% price

A
made a new low below X
Notice how price
bounces off 127.2%
and then breaks
through only to
bounce back up and
consolidate just
X
above the 127.2%
before breaking
down again B
The Bearish 1.272 Projection

Price breaks out above previous price high X and continues
to point B (could be an expanded flat)
B is the first level of resistance after breaking through X
Fibonacci Traders will look to SELL B Calculation Example:
B
1. Subtract Price Low at A
X 2. Multiply 1.272 times the
difference
B price
A

127.2%
B
127.2% is the reciprocal of 78.6%

A 78.6%
The Bullish 1.618 Projection

When a market makes a new low below point X, the 1.618 projection
is the 2nd level to examine for taking profits or looking for a reversal
1.618 (Phi) is the inverse of .618
Fibonacci Traders will look to BUY B
A Calculation Example:

2. Multiply 1.618 times the
difference
X
point B price
B

161.8% is the reciprocal of 61.8%

B
The Bearish 1.618 Projection

Price breaks out above previous price high X and continues to point B
B is the 2nd level of resistance after breaking through X, after 1.618
Fibonacci Traders will look to SELL B
B
1. Subtract Price Low at A
X 2. Multiply 1.618 times the
difference
B price
A

161.8% is the next likely target

after 127.2% for a trend move
Notice how impulsive this move is B

with no corrective candles along
the way
X
PROJECTION RETRACEMENT CALCULATION Key Fibonacci Ratios
RATIOS RATIOS
1 1/1= 1
1.128 Square root of 1.272 .886 1/1.128; Square root of .786
1.272 Square root of 1.618 .786 1/1.272; Square root of .618
1.414 Square root of 2 .707 1/1.414; Square root of .50 4 KEY RATIOS
1.618 Primary Projection .618 1/1.618
2.000 1+1 .5 ; (.707) 2
2.236 Square root of 5 .447 1/2.236 COMPLEMENTARY

RATIOS
2.618 (1.618) 2 .382 1/2.618; (.618) 2
3.14 Pi
3.618 2+2.618
4.236 2+2.236 .236 1/4.236

RETRACEMENT PROJECTION Key Fibonacci Ratios in Harmonics
RATIOS RATIOS
1 1/1= 1
.886 1.128 These are the Retracement Ratios

with their Inverses
.786 1.272 The Retracement ratios are used
4 KEY RATIOS
for calculating pullbacks or
.707 1.414 retracements
The Inverses are the Projection
.618 1.618 ratios to measure projection
targets
.5 2.000 COMPLEMENTARY Just the important ratios are listed
RATIOS
.447 2.236
.382 2.618
3.14
3.618
.236 4.236
Key Fibonacci Ratios in Harmonics
Harmonic Numbers
In Trade What You See, by Larry Pesavento and Leslie Jouflas, they researched
Harmonic Numbers that show up repeatedly in different markets on 30-minute charts
The Harmonic Number is where the market vibrates in price terms at the end of a
swing move
Looking at a chart, the most repetitive swing move in pips for currencies or points for
stocks, for example, will define the Harmonic Number
Pesavento, Larry and Leslie Jouflas, Trade What You See (Hoboken, New Jersey: John Wiley & Sons, Inc., 2007)

Key Fibonacci Ratios in Harmonics
Harmonic Numbers
Here are some of the Harmonic Numbers they found on the 30-minute time frame in
the following Futures Markets:
Bond market 20 ticks
Crude oil 44 and 88
Dow Jones 35, 105 and 70
Euro market 35 and 70
Gold market 11 and 17
Silver market 18, 36 and 12
See how these Harmonic Numbers compare with your own research
Pesavento, Larry and Leslie Jouflas, Trade What You See (Hoboken, New Jersey: John Wiley & Sons, Inc., 2007)

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What are harmonic patterns and how can they be used in trading?

What are harmonic patterns and how can they be used in trading?

What are some common Fibonacci ratios used in harmonic patterns?

What are some common Fibonacci ratios used in harmonic patterns?

Harmonic Patterns

MODULE 1 FIBONACCI OVERTURE

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Welcome to the Harmonic Patterns Training Module 1

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The Course Outline

Section I: Elliott Wave Series

Ultimate Section III: Fibonacci Primer

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Elliott Wave Ultimate Course: Section IV

Module 1: Fibonacci Overture

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Harmonic Patterns: Fibonacci Overture

The Chart is the Roadmap

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1. Understand the background behind Harmonic Patterns

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Technical Analysis Training

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The Elliott Wave Modules and The Wavy Tunnel

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Fibonacci Expansion and Contraction in Markets

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The Chart is the Roadmap

Pattern Recognition offers high probability opportunities

Harmonics is complementary because it too, is based on ratio and proportion

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The Chart is the Roadmap

Price action moves in cycles that expand and contract

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Learn the Patterns and understand the precise Fibonacci relationships

Apply these tools to find High Probability Trade Setups

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Harmonic Patterns versus Elliott Wave Analysis

The Harmonic nomenclature is different from Elliott Wave nomenclature

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Convergence Zones Provide an Area of Confluence or Convergence

Price range where 3-5 calculated Fibonacci ratios congregate

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Examine the Price Action in the Convergence Zone

Small bodied candlesticks might be needed before that actual reversal

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Fibonacci Sequence Revisited

The Fibonacci mathematical model is

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Fibonacci Sequence Revisited

Compare the theoretical Fibonacci squares

Tracks the model up until 21 units of length 8

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Fibonacci Sequence Revisited

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Fibonacci Sequence Revisited

The market cycles all have different characteristics as

Some of the waves expand and others contract

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Fibonacci Sequence Revisited