[Mike]

Possible short on EURJPY Daily. Bearish Bat Pattern has formed. Now, I wouldn't up and go short right away, I'm looking for something to indicate there will be a breakdown or at least a reversal, right now I see sideways action.

Of course right now we're in an uptrend, both on lower time frames and on the daily, but the tipping point might be soon, usually the daily harmonic "tips" things, but this could be wrong so don't go short, just giving you all a possible advanced warning. I have seen on many occasions the pattern continue on the next bar if sideways action continues.





But if things start to go south I'm setting my stop at 104.95

[DickP]

I wouldn't short it at all... total uptrend...

[Mike]

I wouldn't short it now either without reason, just pointing out the pattern that formed. Sometimes they are wrong, but when they are right (and they often are) it precipitates some really nice moves. Just want to warn you



A possible place to start testing shorts would be the tapping of the Yellow Balance Point Line in anticipation of a move down but that's just me, to each his own on this one The YBPL is my reason to go short, but the Bearish Bat is very interesting and may tell the overall trend direction, or at least a major reversal in the making.

[Mike]

Please figure that it could take anywhere from a few hours to a few days for a substantial reversal/short here to materialize, IF AT ALL, so take caution for were are still technically in an uptrend on the longer term.



Comparing the first chart to this one, my concerns hold true in that the pattern has moved to a new daily bar, so the pattern is still holding and still "valid" for the time being.

[DickP]

Regardless , price shooting up to 105.75, 106 soon, still want to short?

[Mike]

I truly did not say SHORT RIGHT THIS SECOND or even TODAY, I said be on the look out for short opportunities in case this pattern holds true and signals a reversal. I know of now better indicator on the daily chart that has produced reversals so consistently as the harmonic patterns.

To put it in perspective, look at the last harmonic pattern a bearish bat a few months ago and look where price ended up. As you can see we were in an uptrend and price hit the reversal area and crashed downward over 800 pips in 15 some odd days then another 400-500 in the weeks that followed that.

[Mike]

I really hate speaking too soon with the Harmonic Daily patterns, but sometimes it does take a few hours or days for the pattern to finally produce some viable results.

As of now, I still have not entered short, seeing price reach 106.00 almost, but I will not give up hope on this pattern until it disappears. Such is the nature of Harmonic Trading

[K-Ro]

Why the hell does it keep going up? I thought it was supposed to go down because of the pattern here!!!

[Mike]

Short answer because a Harmonic pattern is not a magical indicator, it's just a mathematical representation/realization of the way price as moved between levels of support and resistance. Above all remember price does what it wants, if traders want to buy they will buy, if sentiment is long, then traders will go long. As of right now the pattern is holding so mathematically the final leg is still in the right position for the Bearish Bat to still be present, but for how long is the question before it invalidates or price does end up going down.

[Mike]

Again here is an example of why I still use TopGun (which someone asked if I do still), the containment band indicator contained price within 2 pips of the high of the move earlier this morning.



Why I'm sharing this is because I'm deducing perhaps that the Harmonic Pattern, the bearish Bat which is still active might have found the peak at the same place where the containment band was able to. This is just conjecture, anything can happen, but if you were long, the containment band indicator would have signaled a great and appropriate place to exit.

[Mike]

We're now in the 4th day of this active pattern, the last leg is still rising with price, now past 107.00 and tapped 107.50



Going back to the first post I made, it never said SHORT NOW, and this really goes to the heart of this type of trading, when trading harmonics you need to really tow the line between jumping the gun too soon and not waiting too long. On a daily chart, of course it could become a week long (or more) reversal that you can trade.

How can one do that, determine when its appropriate to start trusting in the harmonic pattern. One obvious way is to wait one bar for the reversal to begin, in the EURJPY case right now the pattern formed 4 bars ago but keeps redrawing its position on the next bar and the next until it goes so high that its no longer a bearish bat or until the reversal begins.

My other way, the way I do it I should say, is to look for shorts in the direction of the pattern, in this case, I was looking for a reason to short, and with my other charts in TopGun I literally see no reason to short it yet, not until price crosses the Yellow Balance Point Line and crosses the midpoint line of the containment band which is also a 60min MA, until then we are looking for long trades. In fact, in an environment like this, I'm not even looking for a short but the harmonic pattern in MT4 is in the back of my mind.


NO REASON TO SHORT
So looking at the 600tick chart over the last 3 days, I see almost no reasons to go short, for a brief time price drifts below the YBPL and EURO is looking a tad weak but does not traverse the MIDPOINT LINE of Containment Bands.

Alternatively going long is aided by the containment bands, staying in a long trade until the bands are hit which seem to always predict the high of a short term trend, and only in very strong markets do those bands get violated.



Range Breakouts

The other major thing I still follow is the early warning range trade system where we draw (or use an indicator) to draw a Support and Resistance line below/above where price has been over the last 4 hours (before and during the Asian session)). Once these lines are crossed in either direction, it is a simple and fairly accurate way of determining where the trend will go for the rest of the day or at least until a certain area of support or resistance is reached.

In the example above is a bit tricky because if you take this method literally and go long only after the resistance level is breached you miss out on a large part of the move. You have to remember, the line of support that is drawn on the bottom (where a breakout trade waits to go short) is also a line of support where many traders may go long, and rightly so, even if price is to rise only to the resistance level, it still is a viable long trade. And in the above example price ends up going through the 106.40 resistance level, then retracing below, then back above, note the long candle wicks, price kept rising but in every bar had problems staying there.

This example is from this morning early in the Asian session where I think if you draw lines above and below the range going back a few bars would be more appropriate, but as you can see, there's no shorting opportunities in our golden hours, the bias is to the upside which is my main point.

So there's always a need to confirm your reasons for entries, but don't over analyze and wait for a harmonic pattern to bear fruit because it may take a few days if at all.

[Mike]

As you can see it was as a big failure, a good lesson in price doing what it wants, patterns forming and dissolving before our very eyes if price moves out of the area that is defining it as a pattern, a bat bearish in this case. It was visible up until the last day when it blew past the appropriate level that made it such.

There were some great places to enter, but I don't think anyone could have predicted such a sizable move upward with any technicals.