Pattern Completion Interval versus Potential Reversal Zone
In previous chapter, we have described the Pattern Completion Interval in details. Now many harmonic pattern trader can be curious how the Pattern Completion Interval (PCI) is different from the Potential Reversal Zone (PRZ). In first place, as the PCI and PRZ are derived from different process, they are different tool to trader. Having said that, the deriving process for PCI and PRZ might be too complicated causing some traders to confuse the concept of each other. For this reason, we will clarify the difference by directly comparing PCI and PRZ here. Let us look at the Potential Reversal Zone. So what is Potential Reversal Zone? Simply speaking potential Reversal zone is the area where three or four Fibonacci levels are converging together. Potential Reversal Zone can be used to detect the final Point D of the Harmonic Pattern by projecting several Fibonacci retracements respectively from the point X, A, B and C. The area of the Potential Reversal Zone can be defined by the top and the bottom projected levels in the all projected levels as shown in Figure 5-1.
The main difference between PCI and PRZ is that Pattern Completion Interval forms the strict Symmetrical Trading Zone around the ideal Point D (Figure 5-3 and Figure 5-4). The Potential Reversal Zone (PRZ) does not form the symmetrical zone. However, the PRZ area formation is dependent on the location of each Fibonacci level projections as shown in Figure 5-1 and Figure 5-2. Sometime PRZ area can form the symmetrical trading zone but it is only by chance. Most of time, Potential Reversal Zone will not form the symmetrical trading zone. On the other hands, Pattern Completion Interval will strictly form symmetrical trading zone for every harmonic pattern. Due to this symmetrical property of the Pattern Completion Interval, trader can use many different trading strategies around the symmetrical trading zone beyond the classic harmonic pattern trading setup. With Pattern completion Interval, you can expand your classic trend reversal entry to hedging and breakout trading by setting identical but opposite trading. For example, for bullish Harmonic Pattern formation, you are able to setup the buy and sell hedging positions or straddle breakout setup around the Pattern Completion Interval. This is possible because the Pattern Completion Interval provide the median open price, which can be mirrored around the Ideal Point D.
In addition, Pattern Completion Interval provides you the direct numerical description corresponding to the size of the Harmonic Pattern. Therefore, the size of symmetrical trading zone around the Pattern Completion Interval is a sensible measurement for your stop loss and take profit for each Harmonic Pattern. Especially, once you have mastered the Pattern Completion Interval for your trading, you can gauge your Reward/Risk Ratio with real time market data without the need of any other additional tools. You can expand this with limit and stop order for better managing your order and risk. Overall, Pattern Completion Interval can provide you precise and fast decision-making process for your Harmonic Pattern Trading. In next chapter, we will continue to show you how the symmetrical trading zone works to manage your order and risk in details.