Trade with an Edge

Harmonic Trade Tips - Pattern changes in a live trade

What do you do when the pattern of the trade you are in changes to a new one that has a larger PRZ, covering your original stop?

It happened to me a few days ago - I was in a bullish butterfly trade on usdchf H1, when a new, much larger bullish butterfly pattern appeared, with a much larger PRZ that completely enveloped even my previous stop.

It happens often and its not always easy to see what to do. I am not saying this is the best way, necessarily - but here's my take on it. Feel free to email me if you have a different idea.

Think ... "Different Patterns - Different Trades"

The key thing to recognise is that this new PRZ represents a brand new harmonic trade - even if the pattern is the same type as before. This new trade has nothing to do with the trade we were already in. (Thinking like this makes it easier to deal with - for me anyway.)

Is The New Pattern Tradeable?

First, I would want to see if the new pattern is tradeable at all - i.e. where does the stop need to be and what does the target and average entry price need to be such that the RvR (risk v Reward ratio) can be greater than or equal to 1:2. (That's my rule for RvR - yours may be different).

Previous trade entry relevant for the new trade?

Next - could the entry from the previous trade play any part in the new potential trade? - i.e. is the previous trades entry price somewhere inside the new trades' PRZ? And by using the previous entry price as part of a scale-in, or on its own - can I achieve the required risk/reward ratio of 1:2 in the new trade?

Yes! ... So let's use it

If so - then we're in a brand new trade with the new PRZ, and the stop must now be where it needs to be for the new pattern.

Note: You're not moving your stop on your old trade here - you're entering a brand new trade with a new stop. (we don't move stops, right?)

No? Then Close out the old trade? ... or...

If the current position cannot play a part in the new trade - then a decision is required.

Leave it to run its course or close it out?

Usually I would like to leave it to run its course - after all, who knows - it may still work out. Or you might be able to get it to breakeven. Thing is - when you entered the original trade you must have already accepted the potential loss. So - if the worst comes to the worst - accept the loss and move on.

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