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Harmonic Pattern Indicator Explained (Must Read for Harmonic Pattern Trader)
There are several variations of Harmonic pattern indicators in history of Price Action and Pattern Trading community. Not all the harmonic pattern indicators are the same. In the past the main variations of Harmonic pattern indicators can be categorized as following three different types.
Type 1: Non lagging (fast signal) but repainting – option to enter from turning point. Indicator does not show the failed pattern in chart and last pattern can repaint.
Type 2: Lagging (slow signal) but non repainting – no option to enter at turning point. Indicator does not show the failed pattern but last pattern does not repaint.
Type 3: Detecting pattern at point C but repainting – option to enter at turning point. Indicator detect pattern too early and you have to wait until the point D. Pattern may not achieve point D. Indicator does not show the failed pattern and last pattern can repaint.
Type 1. Non lagging (fast signal) but repainting
First type is non lagging but repainting harmonic indicators. This sort of Harmonic pattern indicator is the typical harmonic pattern indicators used by many traders. The advantage is that you do get the signal early as possible. You have an opportunity to trade from the turning point all the ways down to the continued trend. The disadvantage is that you are not able to test your strategy in chart because this type of harmonic pattern indicator does not show the entry of the failed patterns in chart but only successful one. In fact, Harmonic Pattern Plus and Harmonic Pattern Scenario Planner are under this category. They would provide the fastest signal but you will not able to test your strategy in your chart because they do not show the failed entry in chart.
Type 2. Lagging (slow signal) but non repainting
The second type is that lagging but non repainting. Some people use pretty words like minimal lag Harmonic pattern indicator or etc. But really lagging is just lagging. You can not make it really pretty though. As the literal meaning of lagging indicates, this type of harmonic pattern indicators provide you the lagging signal comparing to the first type. It will only provide you the signal after some times passed the turning point. Hence, you do not have an option to consider your entry from turning point. Depending on the pattern size, sometimes, the lagging can be only several bars but it can range up to several dozens of bars like 30 or 60 bars. Sometimes, your entry might be at the first reversal after the turning point. Hence you have be careful with this sort of entry. The advantage is that you will not experience repaint with the latest pattern though. I am not sure if non repainting property can offset the disadvantage of lagging signals because professional harmonic pattern traders are looking for the turning point entry.
Type 3. Detecting pattern at point C but repainting
The third type is that detecting pattern at C point completion not at D point completion. This type of Harmonic pattern indicator do exists. This type of Harmonic Pattern indicators detect patterns way too early at the point C. For this reason, you have to wait quite some time to trade at point D. If you are trade on higher time frame like H1 or H4 or D1, you might have to wait at least half days to several days. You might run out of your patience quickly with this type of Harmonic Pattern indicator by just waiting and waiting. Since, it is detecting pattern at point D, you are not able to see any failed entry in your chart either. So it does repaint. What is worse is that the pattern can be disappeared while you have been waiting some time. You are just wasting your time in this case.
Some people asked me if they can trade from point C to D. The answer is no because we only recommend to trade patterns after we have done intensive research. We did not do research on trading from point C to D.
By summarizing above three types of harmonic pattern indicator, we can draw some interesting conclusion. Non lagging means repainting and lagging means non repainting. There seems to be some balance between fast signal and repainting issues. It might be the universal or physical law.
4. Main problem of Harmonic Pattern Trading for starter
At the moment, the main problem of Harmonic pattern trading is that indicator or scanner does not show the failed patterns in chart. In fact, no harmonic pattern indicator or scanner shows anyway. Hence this is not the problem for you only but for entire harmonic pattern trader ( also including Elliott Wave pattern trader too). Because Harmonic pattern indicators (Type 1, 2 and 3) show only successful patterns in chart, some people take them as true success rate. This look like success rate of 90% or something.
But, this is not the true success rate. There are many failed patterns and they are just not shown in chart. Then why harmonic pattern indicator or scanner do not show the failed patterns in chart? Is it because we want to hide the failed patterns in the intention to show some false information to trader? Answer is no and never. We are all honest people. Simply it was considered as being impossible to create such a pattern detection algorithm showing failed patterns in chart. So the reason was simply because of the technological barrier.
Hence, experienced Harmonic pattern trader live with this fact every day including myself and others because no such a tool showing failed historical pattern in chart anywhere. We just use our experience to fill the missing information about the failed patterns.
For starters, however this makes difficult to visually understand and test strategy with patterns from chart. They have to rely on external source to learn strategy. This is hard for starters and even for experienced harmonic pattern trader. Sometimes, starters believe that harmonic pattern indicator provide the success rate that was counted from successful patterns only in chart like 90% or something as they do not know that harmonic pattern indicator (Type 1, 2 and 3) does not show failed patterns in chart.. This should be not the right motivation to get involved with harmonic pattern trading. The right motivation to trade with harmonic pattern is that you have an option to trade from turning point.
Now the question, can we have non lagging and non repainting harmonic pattern indicator showing failed historical patterns in chart? The answer is yes. We have broken the critical technological barrier. Now you can have non repainting and non lagging harmonic pattern indicator giving you the true success rate in your chart.
This would be great guidance and trading resource on its own. Because you can easily learn how to use pattern together with other technical and fundamental tools, this would relieve strategy concern for all harmonic pattern trader. You have to remember that non repainting and non lagging harmonic pattern indicator is superior than above three pattern indicators (Type 1, 2 and 3). However, because non repainting and non lagging harmonic pattern indicator shows failed patterns in chart, you might get the opposite perception. Please don’t. Repainting or lagging harmonic pattern indicator (Type 1, 2 and 3) will have equally bad or even more number of failed patterns comparing to non repainting and non lagging one.
For your advantage, it is always better to work with the indicator giving you the realistic success rate for your trading. Then you will quickly learn how to improve your trading. In long run, non repainting and non lagging harmonic pattern indicator is definitely good one to stick with. You can add extra filter or other secondary confirmation. These efforts are real because you can measure the realistic outcome with non repainting and non lagging indicator. Remember that you can readily find out the true winning system with non repainting and non lagging harmonic pattern indicator whereas it is very hard for repainting or lagging indicators (Type 1, 2 and 3).
5. Can we have non lagging but non repainting Harmonic pattern Indicator?
Now the question, can we have non lagging and non repainting harmonic pattern indicator? The answer is yes. This is the next generation of Harmonic pattern indicator which was born from intensive scientific research. We shipped the technology to our Profitable Pattern Scanner. We have provided it for the first time in history.
This type of non repainting and non lagging indicator will provide you the fastest signal entry like first type of harmonic pattern indicator. At the same time, it will show you the failed entry in your chart. Hence you can build and tune your strategy in your chart with other technical indicators at ease or even in backtesting mode. Since you can trade as you see from chart, the confidence of your trading will increase dramatically. This is the true hybrid of all above three types of harmonic pattern indicators. With little bit of knowledge on Pattern Completion Interval, you could take the entry at your favored risk to rewards ratio. We also provide Potential Continuation Zone to perfect your harmonic pattern trading. You can watch video below for more information.