A Book Review – “Harmonic Trading – Profiting from the Natural Order of the Financial Markets” – volume 2 by Scott M. Carney

Looking at the first volume of “Harmonic Trading” I already arrived at the conclusion that there was something special about it. Maybe the combination of technical analysis precise tools with some interesting applications of mass psychology to trading, maybe the quick and informal style of Scott Carney, who knows… Bottom line, I enjoyed the new twists on the old techniques of “wave trading” or pattern recognition on the tech analysis.

If I remember well, the first volume was at the beginner to intermediate level. It was designed keeping in mind that the active traders have usually gaps in their knowledge, meaning that they could master very well some type of trading techniques (such as the Fibonacci calculations of the next price level) and not so well others (maybe graphically plotting the price action on the right side of the chart). All in all, trading is a dynamic endeavor and the bias for action means that inevitably the successful traders will skip some steps in application and jump to the most comfortable parts.

In the second volume of “Harmonic Trading”, Carney addresses the more advanced techniques of the following:
– harmonic waves (somehow similar to the Elliott waves, but incorporating block patterns and thus a higher level view into the trading equation);
– some new harmonic patterns, such as RSI and BAMM
– and lots of mini case studies showing how these techniques work into action.

Scott Carney is not new to this field and what he manages to do is to use old systems in new ways. For example, he masters quite well the Fibonacci ratios – at least that is what I see from the application of the Gartley pattern (requiring a 0.618 and a 0.786 retracement at the B and D points) which has become a ready-to-use addition in most of the nowadays trading patterns.

Now of course this could not have an universal application – and naturally I (and I think Carney too) encourages you to test a certain indicator or another on your practical trading strategy. It might be that this works well for a certain stock or forex pair and fails miserably for another one, so you should be careful.

Carney sets on to present several new patterns such as the 5-0, the reciprocal AB=CD, the alternate BAMM and most notably the RSI BAMM. Although these are quite new, I dared to back test them quickly on a 6 month history of a forex pair and the first results seemed quite good (meaning profit if you used constantly that strategy, which in itself is a victory over the randomness of the markets). The RSI BAMM especially looks interesting – it combines the Relative Strength Index (RSI) with some advanced harmonic trading techniques, such as the technical entities (which are Carney’s name for pattern alignments).

At last (but not at least), Carney underlines an interesting idea – he states clearly that “there are no market gurus”. Whilst this is an idea floating usually in the trading environments, it is relatively unusual to hear it from a trading author. Yet, Carney is relatively honest and lays this out, which I obviously appreciated and took note of.

These things, said, I wish you many happy returns on your investments.

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