Harmonic Grid Trading System - Directional Profits
this time, I would like to present you another grid based idea of position management. The grid setup is basically the same as in Volcano System (which you can find here: Harmonic Grid Trading System - Volcano Setup).
In this system, we will try to catch the market move, expecting, that it will go one direction without too many corrections. Actually, to earn the first profit, we want the price to go just one level in our side.
Here is the idea:
1. We draw Fibonacci Levels from X to A.
2. Like in the Volcano Grid, we don't use standard Fibo. The levels are exactly 20% away from each other. So it will go like: 20%, 40%, 60% etc.
3. The first position is according to the Harmonic Pattern, in this case it's gonna be a buy order.
4. To each position we attach one level of TP (let's say, the spacing here is 10 pips), so it would be 10pips, and 2 levels of SL, so 20 pips. Take a look at the picture:
5. If the price goes to TP, we close the order and earn our 10 pips. It's up to our plan, if we want to take the money and get out to wait for another harmonic, or trail the stop, or even close the trade and immediately open another with the same TP and SL.
6. If the price will go to hit our SL, then we close the trade and open oposite one. So in this case, if buy order will fail, we open short position, with 20 pips SL and 10 pips TP.
7. If the price will trick us once more and go up, we close the short trade and open buy order again.
8. IMPORTANT. Until the TP or SL of the current trade isn't reached, we don't open any positions on the oder grid lines.
Ziemo, in all your pics i see the SL is larger than your TP.
that's correct, this system has a negative reward:risk ratio. Sometimes it may work better than having small stop big tp. But please feel free to suggest your changes/improvements.
Hi I am a pattern/divergence trader and use a grid type approach to my trading because while I trust divergence will give me a TP zone to aim for it cannot find guaranteed tops and bottoms and patterns don't always work, but do help in given an edge.
I will only enter a pattern trade if I have divergence on the same TF or one TF lower than the pattern, so if I have bearish divergence I will then open a sell for 1 lot and a buy trade for 0.5 lot. If the market goes against my sell I wait until the market reaches the next resistance level and open another 1 lot sell and 0.5 lot buy and at the same time move my first buy 0.5 lot to BE + 5 pips. Again if the market continues to be bullish and reaches the second resistance level I now open a third 1 lot sell and a 0.5 Buy moving my second 0.5 lot Buy to BE +5 pips and my first 0.5 lot Buy stop to 5 pips below where the second 0.5 Buy was opened. I continue to do this until the cycle finds a top and brings the market back down.
In this example the Buys are just to protect drawdown until the divergence kicks in and a top is formed, on the H4 and upwards PA always returns to where the divergence started (within a zone) so the gride of sells is where the profit is made.
I hope this gives you some ideas.
Last edited by Robot Trader; 11-06-2012 at 12:50 PM.
hi there and thanks for joining the discussion!
You gave a very interesting idea. Recently I also experiment with divergences, and I have to admit they work pretty well when used with market geometry.
Can I ask you about more details of how You use your grid? Do you take every time the same grid spacing, for how long do you keep opening the trades (because market can go like 200 pips against you, and it would be pretty dangerous to add every time bigger sell orders than long ones in your example:P)
Although it sounds very interesting. It would be just superb if you can post some pictures or screenshots ilustrating your approach
The market moves from convergence to divergence or from divergence to divergence and NEVER does anything else and these are the cycles that we see, please check any instrument on H4 and above and you will see divergence within the market cycle. So I have found the MACD histogram to be a leading indicator for spotting market reversals/corrections (on H4 and above TF's) but it will not tell me when the current trend/impulse move will end, it will only give me a TP zone (a place the market will return to). So I have a few methods of how I start to attack, 1) Patterns 2) Wait for the 3rd Support or Resistance level to be reached following divergence being spotted before beginning the attack 3) Known reversal Candle patterns 4) Bollinger Band duplication or Band to Band moves or PA riding the higher or lower Band without testing the 20 MA for more than 20 closed candles. There are a few more things that I look for to give me conformation before pulling the trigger but these work very well.
Originally Posted by ziemo
The main thing to stress about my trading style is leverage because I have had trades based on Daily divergence go 1200 pips against my first open position before the market turned and went back to the TP zone where the divergence started (the cycle) Every trade is different and I mark on my charts the Support or Resistance areas I will set pending orders should the trade go against me, sometimes I will take smaller position between main S&R levels, but I have found that if PA breaks a S&R level more often than not it will at least test the next level.
I do not use SL's for this method and because I have traded this way for a long time I am comfortable that over time the divergence will do its job, on the Daily I can hold positions for several weeks (so important to pick pairs with low negative or positive swaps)
I have attached a live trade on the Daily EURAUD it was a Sell, so positive swaps, what I like to do is close a few of my early trades just below where my first trade was entered leaving the trades I opened later to run with a TSL to the TP Zone, this allows me to bank some profits and take the risk out of the trade.
Zimeo, the only problem I can see so far is that when a gartley fails you see to enter at the second level which looks to me like the 127.2 extension of the X - A swing. I would suggest entering 10 or more pips before this level as it can be a nice turning point. Maybe moving the SL to the entry of the failed pattern and the entry on the retrace back towards the 100% mark of the X - A swing.
I have added an image which may make sense
Great system, RT. Can you explain more on this short quote, as I suspect that PROPER use of leverage is VITAL to your trading style.
Originally Posted by Robot Trader
Well this depends on how you intend to manage the trade and whether you are going to edge or not. so with a $5K account the following shows how much drawdown you would have where PA moves against you by 1200 pips and a new trade entered every 100 pips.
Originally Posted by gambort
1200 pips x 0.01 (lot size) = $120
1100 x 0.01 = $110
1000 x 0.01 = $100
900 x 0.01 = $90
800 x 0.01 = $80
700 x 0.01 = $70
600 x 0.01 = $60
500 x 0.01 = $50
400 x 0.01 = $40
300 x 0.01 = $30
200 x 0.01 = $20
100 x 0.01 = $10
Total drawdown from above $780 (15.6% on a $5K account) I have not had a Daily divergence trade go against me by more than 1200 pips (based on my entry rules) and I have gone through many old charts looking for trades that would have but found none.
This method makes trading stress free because you are not going to blow your account or have an spike take out your SL for a loss, you are entering the market at what is already an extreme level (overbought or oversold) looking to find the top or bottom of a cycle within 1200 pips or much less. There is plenty of scope to edge your position but this can take more trade management, whereas no edging gives you a trade with very little time management.
Hope this helps
Last edited by Robot Trader; 11-08-2012 at 06:13 AM.
This helps a great deal. I am a newbie, so I hope you will be patient, if I ask dumb questions. I have five questions: (I hope you don't mind!)
1. It seems that .01 lots on a 5k account might mean that your monthly average return would be quite small, especially if, as you intimate earlier, you sometimes have to wait days or even weeks for the PA to return to the TP Zone. Is that correct?
2. What monthly % return would you say is reasonable, based upon your trade experience?
3. How many trades do you open at the same time?
4. It appears that you never would take a loss with this system, if you followed your rules and were patient. I say this, because you also indicate that PA always returns to the TP Zone or zone of initial divergence. Is this correct?
5. How long have you used this system?
I am absolutely intrigued by your system. I have studied and used professional casino gambling systems in live table games, and your system contains a number of "rules" used by professional Blackjack and Craps players.
I appreciate your sharing your hard-earned knowledge with a newbie!
PS: I have already used your system on the USDJPY (H4) and USDCHF (H4), and am very pleased with the results.
Last edited by gambort; 11-08-2012 at 07:02 AM.
Reason: typos, attach pic