Harmonic Grid Trading System - Volcano Setup
First from the new series of Harmonic Grid trading systems.
In this method, we combine the grid trading concept together with harmonic pattern trading. The very basic idea behind grid trading, is mostly to catch any retracement movement in price.
In this scenario, we will do it exactly the opposite way (some may call it anti-grid). We will look for the key turning points in the market and with proper position management - try to reach our predefined target.
The edge of this system, is to take advantage of the large price movements (in any direction). The beauty of it, is that 90% of the time, harmonic patterns indicate critical points in the market from which price will probably travel rapidly north or south, without many sideways moves. This is where we make our money. This position management system (at least in the form presented) is basically designed for Bat Pattern and Gartley Pattern, but feel free to adjust it to any harmonic patterns. It can also be combined with other trading methods that allow you to spot the market turning points.
Try experiment with your TP, this should help you to feel more comfortable with this method. I personally use 30pips profit target (net profit, assuming that from one level to another is 10 pips)
1. We draw Fibonacci Levels from X to A.
2. We don't use standard Fibo. Here, every level is exactly 20% away from another one. So it will go like: 20%, 40%, 60% etc.
3. The first entry is in the direction of harmonic pattern. Let's assume itís a long position (as presented on the example screenshot).
4. On every line above our first entry level we put a buy stop order (with the same lot size as the initial trade) and sell stop on every line below it. Naturally, we do the opposite, if the harmonic pattern indicates shorts (bearish Gartley or Bat pattern).
5. There is no Stop Loss set.
6. We should specify our NET profit amount. Let's say, we want to earn 30pips. To make a calculation easy, let's assume that there is no spread, each level is 10 pips away from each other, and we play with 0.1 lot (1pips=1$).
7. If the price will immediately go 2 levels up, we close everything and take our 30pips (20pips from first opened position and 10pips from the second). If it will activate also sell orders, then we wait for the bigger move and exit only when the defined profit is made.
See the picture illustrating different scenarios of price movement, and how many levels does it have to pass, to earn you a profit.
The true beauty of this method, is that even if the harmonic pattern you are trading fails or not , you will earn money. Of course there are more favourable and less favourable scenarios.
For example, one of them may look like this: if the price passes through a certain amount of levels to the one side, but not enough to give you your target profit, then price retraces and goes the opposite way, to then finally go back again in the original direction, the floating loss will be pretty big..
The key is to be patient, trust the method and properly identify probable turning points in the market (the proper location of the harmonic pattern), to avoid unfavourable whipsaws.
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Last edited by ziemo; 10-26-2012 at 03:46 PM.
Interesting idea guys! Subscribing to the thread.
Of course this material should stay within our own circle.
Let others do the work and try to get results, but............where is it??
I think you are on to something. A grid formation for entries, followed up by a net profit exit is one of the major 'secrets' of successful position sizing. Don't worry about drawdowns....use smaller lot sizes and focus on the compounding effect.
There is a CloseAll tool names Profitkeeper for metatrader 4 that allows you to set equity-based TP for the entire terminal. Your EA system would need an ability to detect when trades have been closed out manually so that it can continue with a new trade basket.
if I understand corecctly first entry is normally in D point(80ret), if everything is going good after 10 pips I open another position(60 ret) in same direction and close both (on 40ret) when 1st +20pips and 2nd is +10pips = 30pips? what if price dont reach 80ret, not every gartley reaches this lvl
lets assume that 0 to 100 ret is 50 pips, so every level is 10 pips
1st buy on 80ret
2nd buy on 60ret - but price falls down
3rd sell on 100ret - price stops and starts rally again
4th buy on 40ret
close all at 20ret when:
1st position is +30 pips
2nd poisiotn is +20 pips
3rd position is -40 pips
4th position is +10pips
overall +20 pips (at 20 ret)
Case II - failed pattern:
1st buy on 80ret - pattern fails, price drops down
2nd sell on 100ret - continue falling
3rd sell on 120ret - still we are loosing
4rd sell on 140ret - we are on BE
close all at 160ret when:
1st position is -40pips
2nd position is +30pips
3rd position is +20pips
4rd position is +10pips
overall +20 pips (at 160ret)
am I getting it right?
Ziemo, do you have some live example of trade with this system?
first of all, many thanks for your replies.
I really hope this thread will develop in some valuable discussion.
thanks, I have several ideas and trying to get somewhere with them I'm looking forward for your further comments on what I will be posting here
I already have 2 EAs, that close open and pending orders on selected pair, after some predefined net profit (or net loss) is made. I will attach them here soon.
you get it right pal. when the price doesn't reach the 80 ret level - there is simply no trade for me. Usually (with the classic approach to harmonic patterns), whatever the pattern was (gartley or bat) I was always waiting for 88.6 to enter (for better R:R).
In this concept, I've chosen the 80 level. Plese notice, that in fact there are much more levels than I showed on the picture (they can go countless number below and above the D point. I usually set up like 20 pendings above and 20 below it).
In my next post, I will present you a couple of real market situations, some easy to trade like a piece of cake, and one really difficult..
To check this system in real environment, I analyzed over 90 harmonic patterns. 95% of them were from M5 timeframe, and the rest from M15. Almost all of them sooner or later went to my profit, but there have been 3 I believe, that caused me a lot of trouble (one of them I post on the end of this post).
Check out these examples:
This one was easy. Entry on 80ret, exit on 40ret, 30pips profit made (assuming, that from one level to another is 10 pips).
Look how strong the move was, you could earn damn a lot on it, but exit rules are clear. After the profit is made, get the hell out of the market.
Another clear situation, price went straight onto my target.
This one also doesn't need a comment.
Here it goes a little bit more complicated. First the price opened 2 buy trades, then went down. Opened 3 sell orders and went up back again. It took some time, but it finally went far north. When there was an 8th buy order opened, the profit was already +10. Good enough to quit, because if market would now reverse downside, I will have to wait damn a lot until I will get any profit or even BE. When it gets hot, just try to take any profit or BE, and quit. It doesn't happen a lot though.
This a classic example of failed pattern. It was also easy, because the price opened only one buy at 80ret, and then went straigt down. Couple of sell entries and we are home and dry.
And here the real fun begins. Let's take a deeper look on this:
1. 2 sell orders opened (80 and 60 ret)
2. Price goes up, opens 4 buy orders (still not enough to give us a profit)
3. Then it goes down again, notice, that we have 4 buys, that are hanging up there. To get any profit, we need price to open around 11 sell orders now. Let's observe it.
4. It goes down. Around 4pm we have already 7 sell orders open. Not bad. But then the price goes up again. Actually it doesn't open more buy trades (luckily), but somehere around the D point of the pattern, the net loss was pretty huge. And imagine it, that the price could go up then for some longer time. It could be really problematic.
5. Then it goes down again. You can not see it here, but if you take a look at your charts, the price went far south and finally gave us a profit. But it took some time.
My question to you guys is: what ideas do you have to avoid this kind of situations? Because sometimes net loss is becoming pretty huge, and you have to wait very long time, till the trade finishes. For example: if you have 5 buys on one side, you have to wait until 13 sells are opened etc. Any ideas, of how this can be improved, are very welcome
"Let others do the work and try to get results, but............where is it??" - sorry mate, maybe because my English is not so good, but I don't understand your point. Could you please say it in some different way?
How about taking half profits. This would then bank some pips and reduce your risk.
E.g if you take half profits and the market moves against your open positions your floating loss would be reduced. This would help if you want to stay in the market.
The other option is to trail your stop so one you are in profit your stop is a break even for the total amount of trades open.
I learnt that forex is all about assuming risk, reducing risk, eliminate risk and let your profits run.
Work into your strategy a method to reduce risk as more trades are open instead of increasing it.
Try not to let a winning trade turn into a losing one especially when you get so close to your TP target.
Last edited by Samtastico; 10-27-2012 at 02:39 PM.
hey, thanks for your reply.
"Work into your strategy a method to reduce risk as more trades are open instead of increasing it." - this is a very nice concept, any ideas how can I implement it into this strategy? Of course I can make my TP smaller, and close all after 10 pips is made. But sooner or later, I will get into difficult situation, and I have to have some plan how to get out of troubles.
"Try not to let a winning trade turn into a losing one especially when you get so close to your TP target." - that's exactly what happened here. It was one level to less to take the profit...