IYF, the ETF for US Financials, Day chart shows the nice upside move from 73.35 low has in fact been in Retrace Mode of a Bullish Crab harmonic pattern and has retraced 100% (the dreamed of target to patterns, in my opinion).  All patterns do not retrace 100% but isn’t it grand when it does.

IYF Day Chart

There’s a few things I’d like to point out on this chart, look at that black outlined lime green bullish PRZ (Potential Reversal Zone aka the completion zone for a harmonic pattern).  First point, the pattern was auto-plotted with the Harmonic Pattern Collection Indicator for NinjaTrader7.  Second, I circled the HSI (Harmonic Strength Index) in two places that correlate with swing low price points.  This offered great positive divergence when price was able to hold back above the PRZ offering a long opportunity for a probable Retrace Mode.  There’s no way of knowing just how much a pattern will retrace so risk management is a must and a number one suggestion is NEVER allow a winning position to turn into a losing one, so lock in profits when it goes your way.

Another thing I wanted to point out is that since I have been utilizing harmonic patterns for many years, recognizing them comes second nature but I also like drawing my own, so the green colored pattern is what I drew using my STZone indicator, it auto-plots the primary harmonic regions and shows at a glance what PRZ targets I’m looking for based on the harmonic pattern rules.  Here’s the thing, these indicators offer traders less time invested in drawing  patterns so that they can focus more on trading patterns.

For an intraday perspective, I’m looking at the Hour chart.  The HPC indicator shows a bullish PRZ that has been a holding support.  My STZone drawing shows that a break down of that PRZ has a lower PRZ target of 86.82 from a different harmonic rotation.

IYF Hour Chart

The zone labelled GRZ (Golden Ratio Zone) represents the area between the 38.2% and 61.8% Fibonacci’s.  As long as price holds below the black trendline or more important below the GRZ, the implication is to retest the PRZ.  Note this 89.11 level is the cyan colored triangle midpoint so there’s convergence as support.  The intraday bias is to the downside until price can initially hold back above the GRZ then take out that trendline but will highly increase upside bias scenario with a hold above the GRZ.

If price tests the bottom of the green PRZ at 88.54, this correlates with the Day chart’s 88.45 zone and Day 200 moving average so that would be a very important support test.

If price completes the cyan pattern at 86.82, that will increase the probability of shifting the Day bias from neutral to downside.

If price can hold above the GRZ 90.91 the ideal target is 92.66 retest, that would help the Day chart retest the 100% retrace target.

If you’re interested in the indicators shown on these charts, you can get the HPC and HSI here and use code ST25.  And you can get STZones here.

Trading involves substantial risk and is not suitable for all investors. Past performance is not indicative of future results.

By Kathy Garber

Harmonic Trader Contributor

Founder Structuraltrading.com