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A Book Review – “Harmonic Trading – Profiting from the Natural Order of the Financial Markets” – volume 1 by Scott M. Carney

There are various opinion currents in the technical analysis. One of the recent ones appeals to the natural order of the markets and to uncovering patterns which appear from time to time. This approach to technical analysis does not try to find models where there is none. Rather the natural order trading is trying to catch patterns as they emerge and ride them for the benefit of the trader. These things said, “Harmonic Trading – Profiting from the Natural Order of the Financial Markets” is a book which uncovers several such patterns for the benefit of the trader.

Scott Carney, founder and president of a company called (surprise surprise) “Harmonic Trading”, has studied quite a long time these patterns. His experience started with the Fibonacci approach, a trading method which uses the Fibonacci numbers to predict the most probable incoming price levels. This is a probabilistic approach and, like all the methods based on probabilities, it chases patterns where over the long term you are more likely to offset losses with your gains (rather than the other way around).

Many of the methods (if not all) described in the volume 1 are methods which a seasoned trader has previously seen in other books, piece by piece. I have been reading quite a few technical analysis books in the last year and I was impressed by one thing when looking at “Harmonic Trading – Profiting from the Natural Order of the Financial Markets”: the book is accessibly written. It takes you from the basics of the Fibonacci numbers, then it shows you the main methods to identify a pattern and the main patters, just to finish with a trade management system.

The book is quite easy to read and does not involve too much effort from the reader. And it does a good job in order to bring together the main patterns and their detailed explanations under one cover. I liked a lot the so-called “bat pattern”, where the price of a security goes up and down tracing the shape of a bat’s wings (if you add also the bottom lines). Carney not only showed the bat pattern in various set-ups, but also did the extra mile job to trace on the graph the Fibonacci proportions among the bat’s wings. Now this is what I call an above-the-average effort, since most of the books I was reading were just telling you to look by yourself at those numbers and required you to believe them and trace the proportions in solitude.

“Harmonic Trading – Profiting from the Natural Order of the Financial Markets” is not a book for the beginners, though. It requires you to understand a bit the mechanics behind trading. You should have also used for a couple of months a trading platform, otherwise you risk of being discouraged by the relatively technical language of the book. Yet, the book is not too advanced in notions – just at the average level of a trader, making the reader’s life much easier.

The book also look at the candlestick patterns – an area most often treated separately in most of the other technical analysis materials I read. I enjoyed recapitulating the major reversal patterns based on candlesticks. The reason is that these are easy to spot (at least for myself) and easy to act on. Now, if you want more complicated patterns, Carney’s book has those too. The only caveat here is that you have to train again and again your eye until the development of the pattern becomes automatic for you…

The good news is that there is a volume 2 for this book, with more advanced techniques. When I will get my hands on this second volume of “Harmonic Trading – Profiting from the Natural Order of the Financial Markets”, I will surely come back with more details. Until then, have a nice reading session!

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