harmonics presentation slides - august 2014
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Harmonic Patterns
Purely Subjective Approach to Trading Elliott Waves
The presenter does not assume any responsibility whatsoever for theactions of any person viewing or reading the contents of this
presentation. The presenter may or may not hold positions in the
financial instruments discussed.
Trading and investing involve high levels of risk. Future results can bedramatically different from the opinions expressed in this course. Past
performance does not guarantee future performance.
This presentation is provided for informational and educational
purposes only and does not constitute any type of investment advice.
There are no implied guarantees for the accuracy of information or
warranties associated with any representations made in this
presentation and the presenter shall not be held liable for any
inaccurate or incomplete information or for any improper or incorrect
use of the information contained in this course.
Bio – About Us
- Alex Bernal, CMT
- President & Chief Analyst Aether Analytic LLC.
- Quantitative Analyst and Trading Strategy Architect
- Previous Positions
- Bear Stearns, M&N Trading, Allston Trading
Aether Analytics Current and Past Client List Includes- Goldman Sachs- Gambit Trading - Facet Capital Partners- Breakwater- Westridge Capital
- IB Group- Obsidian Analytics- Sardonyx Capital- PCLA Group- Ameriflex Financial- Skylark Capital- Lido Isle Advisors
- GTA Group
We believe that the structure of neighboring waves in price action tend to be
related by geometric & mathematical harmony… And we also believe that
most financial systems have select moments within a regime that have very
high predictability.
Brief History of EW and Harmonic Patterns
HM Gartley RN Elliott Pesavento
Carney
Traditional Classic Elliott Wave Model
Copsey Modified Elliott Wave
Fractal Dimension
Universal Dogma 4 : The laws of nature are fixed. They are the same today as they were at the beginning, and they will stay the same for ever.
How to Find & Measure Harmonic Patterns
How to Find / Measure Harmonic Patterns
0.09 0.236 – 0.146
0.146 0.236 ÷ 1.618
0.236 0.382 ÷ 1.618
0.382 0.618 ÷ 1.618
0.414 2.00 ÷ 2 – Sacred square
0.486 0.618 × 1.50
0.50 1 / root 4
0.557 Reciprocal of 1.732
0.618 1.00 ÷ 1.618
0.685 0.618(0.786)
0.707 2.00 ÷ 2 - Sacred Cut
0.786 1 ÷ 1.272
0.886 0.786
1.0 1.618 ÷ 1.618
1.13 1.27
1.272 1.618
1.414 2.00 - Diagonal of a square
1.460 1.618(0.786)
1.618 Phi – Golden Ratio
1.732 3.00 - Diagonal of a cube
1.886 4.00
1.902 Diagonal of a Golden Rectangle
2.00 4.00
2.236 5.00 - Diagonal of two squares
2.618 1.618 × 1.618
3.14 Pi
3.33 2.618 × 1.272
4.236 2.618 × 1.618
6.854 4.236 × 1.618
Important Geometric Ratios - *Bryce Gilmore
Æther Analytics
RISK MANAGEMENT
RISK MANAGEMENT
RISK MANAGEMENT
RISK MANAGEMENT
External Wave Structure
Focus Areas
Typical EW Trading Rules
Trading Wave 1 (end of wave C)1. Enter in Wave 2 (of 1) after ABC Down Reaches 0.618% of 1.
2. Stop loss @ low of wave 1
3. Exit after 5 wave up (end of wave 1)
• Problem – Entering Counter Trend (fading) (low probability success)
• Problem – Stop loss is defined as price distance not volatility measure
• Problem – Risk Reward is not defined before trade is made
• Problem – No quantitative evidence to support thesis. Merely observational
Stop
EntryA
B
C
1’
2’
1
Typical EW Trading Rules
Trading Wave 2 (end of wave 1)1. NOT Recommend by most EW practitioners
2. Stop loss @ high of wave 1
3. Exit after ABC or 0.618% of wave 1
• Problem – Limited Profit potential since next wave (3) is expected to be bigger
opportunity
• Problem – Stop loss is defined as price distance not volatility measure
• Problem – No quantitative evidence to support thesis. Merely observational
1
2
Typical EW Trading Rules
Trading Wave 3 (end of wave 2)1. Enter @ beginning of wave 3 (wave2” of wave 3)
Or
2. Enter @ breach of wave 1 High
3. Stop at Wave 2 low
4. Target is at least 1 : 1 Length of wave 1 (3 never shortest
• Success – Defines Risk Reward Before Trade
• Success – Trades With Trend (best wave to trade)• Success - Quantitative evidence to support this edge
• Problem – lose profit distance needed to confirm
1
2 Stop
Entry
Entry
Typical EW Trading Rules
Trading Wave 4 (end of wave 3)1. 60% -70% of the life of Markets are consolidating
Problems – Complexity, Rule Exceptions.
Problems – No Definable Risk Reward
Problems – Shorting against Strongest Wave (3)
Typical EW Trading Rules
Trading Wave 5 (end of wave 4)1. (after ABC) by at 2” of 5.
2. Stop loss @ low of 4C
3. Exit after 5 waves complete 5th ()
• Problem – pinpointing the end of a complex wave 4 is very difficult (whipsaws)
• Problem – No specific profit objective (wave 5s often can be 3 waves)
• Problem – Theoretically buying end of trend move
• Success – In ideal wave, can be profitable
2”
4
3
1”
Entry
Entry
StopC
B
A
Typical EW Trading Rules
Trading Wave A (end of wave 5)1. Enter when wave 5 = length of wave 1
or.
2. Enter on breach of wave 4” of the 5th wave.
3. Stop loss @ high of wave 5 or undefined
4. Exit after 3 waves to complete ABC
• Problem – pinpointing the end of a complex wave 4 is very difficult (whipsaws)
• Problem – No specific profit objective (wave 5s often can be 3 waves)
• Problem – Theoretically buying end of trend move
• Success – Large Profit Potential
• Success – Quantitative evidence
2”
4
3
1”
Entry
Stop
C
B
A
3”
4”
5” 5
Typical EW Trading Rules
Trading Wave B (end of wave A)1. NOT Recommend by most EW practitioners
2. Stop loss @ low of wave 1
3. Exit after 5 wave up (end of wave 1)
• Problem – Same Complexity problems as wave 4
• Problem – Limited profit potential (buying the last gasp)
• Problem – little quantitative evidence
Stop
Entry
A
B
C
A’
B’
B5
A
C’
Typical EW Trading Rules
Trading Wave C (end of wave B)1. Enter on wave 2’ or breach of wave 1’ after ABC
2. Stop loss @ C
3. Exit after C completes ABC or length ratio to A
• Success – Defined Risk Vs Reward
• Success – First macro opportunity to enter new trend with lower risk
• Success – Strong quantitative evidence of edge
• Problem – Loss of distance to confirm
Stop
Entries
A
B
C
A’
B’
B5
A
C’
2’
1’
Typical Elliott Wave Rules – Problems (Personal opinion based on AE research)
1. Arguably SUBJECTIVE process due TO THE ANALYSTs interpretation of complex rule
set (Linear based thinking on a non-linear dataset)• Rules too rigid and No consistent rules for exceptions
• Subject to constant reinterpretation : If they cant find waves they look backwards
and recount. Discrediting all work up to that point. “….just kidding moments”
• Much evidence to disconfirm rules
2. MULITPLE Counts?! – backup counts to continue to be RIGHT
3. Ratio Lengths have too much leeway (Sometimes, typically, often…fibs. etc)
4. Difficult to define RISK / Reward in certain scenarios
5. Little Quantitative / statistical evidence of a definable edge : Still a Theory
Harmonics – Isolation Approach1. Does not Aim to explain all markets or human behavior. When approached with a
Chaos Theory / Complexity Theory Foundation allows for unlimited possibility.
2. Only 1 OBJECTIVE “count” or definitive rules on each patterns ratios and turning
points
• Creates Binary Decision Tree (true, false)
3. Compliments the Aims of trading with Elliott Wave (Waves, 2, 5, B favored)
4. Risk management built into the structures (Clear Risk Reward)
5. Patterns also prove to work without consideration of overall EW count
6. STRONG QUANTATTIVE / statistical evidence of a definable edge : Provable System
Section 2
Advanced Analysis
of
Harmonic Patterns
Structure RankingExternal Vs Internal
Internal
• What is going on Inside the pattern.
• Specific price / volume behavior on
each leg
• Angle & Ratio Measurement of Cross
Angles
• Time Symmetry
External
• Where the pattern is appearing in
context of larger term trend
• What type of wave structure terminates
at X point
• Does X confirm in a high probability
mean reversion zone. *Median Absolute
Deviation
Internal Angles Æther Analytics
Too Obtuse?
Too Acute?
ABC : XBD Angle Ratio
ABC
XBD
AC
B
X
Cross Angle & Length Ratio Measurement’
Æther Analytics
D
Harmonic Time Analysis
Time Ratios – Detailed StructureÆther Analytics
Indicators in Harmonic Trading
Focus on only Non- Linear Indicators
….The problem with virtually all indicators is that they are causal. That
means they directly depend on data for their computation and signaling.
As a result, the computation cannot be accomplished until after the data
arrives, and - as a result - all causal indicators have lag – DR Ehlers
PRICE ALMOST ALWAYS LEADS INDICATORS, BUT PREDICTIVE INDICATORS DO EXIST
Focus only on Very Low or Zero Lag predictive functions
Assistance in execution – Quantitative Signaling & Confirming Reversal
Assistance in measuring momentum – Fractal Dimension and time & price
deceleration
Assistance in measuring trend continuation – Regime Monitoring
- *Most Smoothing Adds Lag
All time
frames
% Failure Rate Per Tier of Pattern Rank
Pattern
Type
# found NO
Ranking
Below 25% 25%-75% Above 75% 95%+
Gartley 200,173 16% 14.48% 8.84% 5.59% 3%
Butterfly 215,616 19.5% 16.21% 7.54% 4.25% 2.58%
Crab 298,455 24.01% 20.59% 16.58% 8.59% 3.56%
Deep Crab 164,589 26.05% 22.05% 17.21% 9.59% 3.86%
Bat 189,584 17.89% 12.47% 7.68% 3.99% 2.52%
Cypher 226,458 17.25% 11.89% 6.45% 3.45% 1.97%
Shark 152,484 28.54% 21.22% 15.33% 8.87% 4.01%
5-0 176,548 22.25% 16.48% 11.85% 5.58% 3.39%
Sample Data set : Minimum 4 Years Tick Data – 2013 Updated
Success Defined as a % of patterns that reached target 1 or Moved Enough
ATR to adjust stop to breakeven
Sample Statistical Study
Harmonic System Backtest PerformanceFutures & Forex Only
In Sample Period 2000-2013
Forward Test Period (Tracked Live Trades) Apr 2013 - Present
Profit Factor 2.50
Percent Profitable 54.18%
Sharp 0.68
Expectancy 0.5571
Average DD 8.177%
Return 54.18%
Max DD 21.70%
* Past results are no indicative of future performance
Harmonic System Performance
Takeaways• Markets are provably Chaotic Systems. Constantly moving across the
path of least resistance in repeating fractals. Always moving from a
regime of a balanced state to trending state.
• We can measure these market regimes with non-linear based models.
Hurst Exponent & Fractal Dimension
• Harmonic Pattern trading adds an objective systematic approach to
trading subjective Elliott Wave Patterns or forecasts.
• Not all harmonic patterns carry the same probability of success
• Analysis of internal & external important
• MOST TECHNICAL INDICATORS HAVE PROVABLY LOW OR ZERO EDGE
Contact Info
Alex @ AetherAnalytics.com
Twitter : @interestratearb
AetherAnalytics.com
Skype : alexbernal0
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Old Newsletter User Guide
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Quick Pattern Reference Guide
A
C
B
D
X
Target 1
0.618 – 0.786 of XA
Target 2
1.272 – 1.618 of XAIdeal Bullish Gartley
0.786 PRZ
Æther Analytics
A
C
B
D
X
Target 1
0.618 – 0.786 of XA
Target 2
1.272 – 1.618 of XA
Ideal Bullish Gartley
0.786 PRZ
Æther Analytics
A
C
B
D
X
Target 1
0.618 – 0.786 of XA
Target 2
1.272 – 1.618 of XABullish Gartley
0.707
0.786
0.886
PRZ
Æther Analytics
A
C
B
D
X
Target 1
0.618 – 0.786 of XA
Target 2
1.272 – 1.618 of XA
Bullish Gartley
Æther Analytics
0.707
0.786
0.886
PRZ
A
C
B
D
X
Target 1
0.618 – 0.786 of XA
Target 2
1.272 – 1.618 of XAIdeal Bullish Butterfly
1.13
1.272
1.618
PRZ
Æther Analytics
A
C
B
D
X
Target 1
0.618 – 0.786 of XA
Target 2
1.272 – 1.618 of XA
Ideal Bullish Butterfly
Æther Analytics
1.13
1.272
1.618
A
C
B
D
X
Target 1
0.618 – 0.786 of XA
Target 2
1.272 – 1.618 of XABullish Butterfly
1.13
1.272
1.618
PRZ
Æther Analytics
A
C
B
D
X
Target 1
0.618 – 0.786 of XA
Target 2
1.272 – 1.618 of XA
Ideal Bullish Butterfly
Æther Analytics
1.13
1.272
1.618
A
C
B
D
X
Target 1
0.618 – 0.786 of XA
Target 2
1.272 – 1.618 of XABullish ‘Gar-fly’
1.13
1.272
1.382
PRZ
Æther Analytics
A
C
B
D
X
Target 1
0.618 – 0.786 of XA
Target 2
1.272 – 1.618 of XA
Bearish ‘Gar-fly’
Æther Analytics
1.13
1.272
1.618
A
C
B
D
X
Target 1
0.618 – 0.786 of XA
Target 2
1.272 – 1.618 of XAIdeal Bullish Bat
0.886 PRZ
Æther Analytics
A
C
B
DX
Target 1
0.618 – 0.786 of XA
Target 2
1.272 – 1.618 of XA
Ideal Bearish Bat
Æther Analytics
0.886 PRZ
A
C
B
D
X
Target 1
0.618 – 0.786 of XA
Target 2
1.272 – 1.618 of XABullish Bat
0.886 PRZ
Æther Analytics
A
C
B
DX
Target 1
0.618 – 0.786 of XA
Target 2
1.272 – 1.618 of XA
Bearish Bat
Æther Analytics
0.886 PRZ
A
C
B
D
X
Target 1
0.618 – 0.786 of XA
Target 2
1.272 – 1.618 of XA
‘Alt’ernate Bullish Bat
PRZ
1.00
1.13
1.272
Æther Analytics
A
C
B
D
X
Target 1
0.618 – 0.786 of XA
Target 2
1.272 – 1.618 of XA
‘Alt’ernate Bearish Bat
Æther Analytics
PRZ
1.00
1.13
1.272
A
C
B
D
X
Target 1
0.618 – 0.786 of CD
Target 2
1.272 – 1.618 of CD
Bullish Deep Crab
PRZ
1.50
1.618
1.786
Æther Analytics
A
C
B
D
X
Target 1
0.618 – 0.786 of CD
Target 2
1.272 – 1.618 of CD
Bearish Deep Crab
Æther Analytics
PRZ
1.786
1.618
1.50
A
C
B
D
X
Target 1
0.618 – 0.786 of CD
Target 2
1.272 – 1.618 of CD
Bullish Crab
1.50
1.618
1.786
Æther Analytics
A
C
B
D
X
Target 1
0.618 – 0.786 of CD
Target 2
1.272 – 1.618 of CD
Bearish Crab
Æther Analytics
PRZ
1.786
1.618
1.50
A
C
B
D
X
Target 1
0.618 – 0.786 of XC
Target 2
1.272 – 1.618 of XC
Bullish Cypher
PRZ
1.04
0.786
0.886
Æther Analytics
D
Target 1
0.618 – 0.786 of CD
Target 2
1.272 – 1.618 of CD
Bearish Cypher
Æther Analytics
PRZ
1.786
1.618
1.50
A
C
B
X
A
C
B
D
X
Target 1
0.618 – 0.786 of CD
Target 2
1.272 – 1.618 of CD
Bullish Shark
PRZ
1.13
1.272
1.382
Æther Analytics
D
Target 1
0.618 – 0.786 of CD
Target 2
1.272 – 1.618 of CD
Bearish Shark
Æther Analytics
PRZ
1.382
1.272
1.13
A
C
B
X
1
Buy Stop to Entry
Bullish Three Drive – Wolfe Wave
3
2
A
B
Target 2
1.272 -1.618 A3
Æther Analytics
1
Sell Stop to Entry
Bullish Three Drive – Wolfe Wave3
2
A
B
Target 2
1.272 -1.618 A3Æther Analytics
X
Bullish 5-0 Pattern
D
B
A
C
Target
1.00 -1.618 BC
Æther Analytics
X
Bearish 5-0 Pattern
D
B
A
C
Target
1.00 -1.618 BC
Æther Analytics
Complex Harmonic Patterns
&
Misc. Wave Fractals
A
C
B
D
X
‘Kane’ Pattern
Æther Analytics
Target 1
B - Point
Bullish Crown Pattern
G
A
B
Target 2
1.272 -1.618 BC
C
E
D F
X
1.00
Æther Analytics
Target 1
B - Point
Bullish Crown Pattern
G
A
B
Target 2
1.272 -1.618 BC
C
E
D F
X
1.00
Æther Analytics
AC
B
D
X Length of A-D = 0.5 * BC= 0.618 * BC= 0.786 * BC= 0.707 (sometimes)
* Price & Time Symmetry
Gilmore ‘False Breakout’
Continuation
Cypher Symmetry
Æther Analytics
A
C
B
D
X
Length of X-C = Length of A - D* Price & Time Symmetry
Gilmore ‘Double Cross’
Shark Symmetry
Æther Analytics
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