Overview on Practical Trading with the Fifth Regularity
As we have shown in the Price Pattern Table in Figure 3-3 and Figure 3-4 in the 1st training course, we have identified the five regularities in the financial market. We can make use of these five regularities to predict financial market for our trading. It is wise to assume that no single trading strategy can work for all the price patterns or for the five regularities listed in Figure 3-3 and Figure 3-4. In fact, a trading strategy is designed to deal with one or few price patterns in Figure 3-3 and Figure 3-4. For this reason, we have to make the choice over the trading strategy we are going to use. It is important to use the right trading strategy to deal with the specific price patterns in our chart. The focus of this book is to present the practical trading strategies to deal with equilibrium fractal waves and other EFW derived patterns in the price series. The five characteristics of equilibrium fractal wave include:
Infinite scales ( or infinite cycle periods)
Loose self-similarity (heterogeneity)
These five characteristics can be used to guide your trading with equilibrium fractal wave or other EFW derived patterns. Trading with equilibrium fractal wave or the EFW derived patterns require both discipline and experience. If you try to practice your trading without understanding these five characteristics, then it will take long time to master those techniques. Therefore, we do recommend going back to the first training if you are still not clear about these five characteristics.
Since varying scales of the patterns represents the infinite number of cycle periods, the smoothing algorithm based techniques can fail to extract useful insight from these price patterns. In fact, the pattern recognition for the practical trading is a challenging task for traders. In the 1st training course, we have emphasized that the Peak Trough Analysis can be a great help for our pattern recognition task. We have also outlined the three important benefits of using the Peak Trough analysis for our practical pattern recognition. The three important benefits include:
Pattern recognition by identifying the boundary of the patterns.
Ratio analysis for the scale free pattern recognition.
Potential Scenario reduction in pattern recognition.
Furthermore, we have shown how to use “Equilibrium Fractal Wave index” to confirm the presence of particular shape of equilibrium fractal waves in the financial price series. The EFW index can be used:
To know that any EFW based trading strategies, like harmonic pattern and Elliott wave theory, are suitable for the financial market of your interest.
To fine tune your trading strategy and Fibonacci ratio analysis.
To select the financial market which your trading strategy can perform the best.
In the 2nd training, we will present the several practical trading strategies, which is designed to deal with equilibrium fractal wave and the derived patterns. In first chapter, we will cover Fibonacci patterns to start with. Then in the Second chapter, we will cover the support and resistance in details. The support and resistance trading is one of the most popular trading techniques used in the world of trading. At the same time, the concept of support and resistance is the backbone of many advanced trading strategies. If you understand how support and resistance work, you can typically accelerate your learning with other trading strategy. Furthermore, the book connects the concept of support and resistance to the equilibrium fractal wave trading. In the equilibrium fractal wave trading, we introduce how to use the “equilibrium fractal wave index”, “shape ratio” and “equilibrium fractal wave channel” for your trading. After equilibrium fractal wave trading, we will introduce three other trading strategies based on the EFW derived patterns.
The three trading strategies for the EFW derived patterns include Harmonic Pattern, Elliott Wave patterns, and triangle and wedge patterns. These three trading techniques are nearly 80 years old but still practiced by many financial traders. Harmonic Pattern is one of the best example to trade with the repeating price patterns from the financial market. The first Harmonic Pattern was discovered by Gartley in 1935. Since it was described in the 222 page on his book, trader calls it as Gartley 222 pattern. Later the Harmonic Pattern becomes more popular with the work of Pesavento and Shapiro in 1997. After that, many other variations of harmonic patterns were reported among traders. They follow the similar rule to Gartley 222 pattern but they use different Fibonacci ratios in defining the patterns. Elliott Wave Theory is another popular technique to study the repeating price patterns from the financial market. The technique was developed by Elliott in 1930s. He developed the theory to describe the price pattern made up from the crowd behaviour in the stock market. The detailed description about his theory is illustrated well in his two books in 1948 and 1982. Apparently, his two books were published much later due to his illness. Triangle and wedge patterns are another important class of the patterns to explain the existence of Equilibrium Fractal-Wave process in the financial market. Triangle and wedge patterns were extensively illustrated under the same book published by Gartley in 1935. Gartley’s work on triangle and wedge patterns was the extended work from the work done by Schabacker in 1932. Some years later, Elliott also tried to explain triangle and wedge patterns using his Wave Principle.
About this Article
This article is the part taken from the draft version of the Book: Scientific Guide To Price Action and Pattern Trading (Wisdom of Trend, Cycle, and Fractal Wave). This article is only draft and it will be not updated to the completed version on the release of the book. However, this article will serve you to gather the important knowledge in financial trading. This article is also recommended to read before using Price Breakout Pattern Scanner, Advanced Price Pattern Scanner, Elliott Wave Trend, EFW Analytics and Harmonic Pattern Plus, which is available for MetaTrader 4 and MetaTrader 5 platform.
Below is the landing page for Price Breakout Pattern Scanner, Advanced Price Pattern Scanner, Elliott Wave Trend, EFW Analytics and Harmonic Pattern Plus. All these products are also available from www.mql5.com too.