Product Review: Harmonic Trader by Dennis D. Peterson
Harmonic Trader is a website that offers a number of technical tools that were created by Scott Carney. Besides being the author of three books, Carney is the architect of Harmonic Analyzer, a web-based application that will search for Gartley, butterfly, bat, and crab patterns. For some, these names may not ring any bells. The Gartley pattern is sometimes referred to as the “222” pattern because it is discussed on page 222 of H.M. Gartley’s book, Profits In The Stock Market.
As a bit of review, Gartley patterns can be either bullish or bearish. They consist of four legs or segments of price movements (Figure 1). There is a convention for naming the starting and ending points, with X being the start and A, B, C, and D being the next four.
Carney focuses on specific Fibonacci ratios to define the geometry of Gartley patterns. His approach to validating the pattern is using specific values of Fibonacci numbers (Figure 2). The beauty of Carney’s web package is that it will search for the patterns.
An additional feature is that Harmonic Analyzer (HA) software uses free Yahoo Finance! data for daily data. For intraday data, HA interfaces with eSignal. For the Gartley pattern especially, Carney has found that most profitable trades come from having AB=CD — that is, the price change defined by points A and B equaling the price change between points C and D.
Point D is a potential turning point, but all you can do is estimate a range as to where price might turn. Carney refers to this as the potential reversal zone (PRZ). The Harmonic Analyzer projects price points where price might turn. Carney has some insights as to what works best for Gartley versus bat versus butterfly. For example, for Gartley, the PRZ you will typically see is point D, as given by AB=CD, 0.786XA, and 1.414BC. I say “typically,” because there are alternatives.