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79

Potential Reversal Zone Confirmation

Once you have identified a harmonic set-up, there are other signs that will define the potential reversal zone more clearly. Although these other indicators should merely complement this area, they can provide even greater confirmation of the validity of a potential reversal. Also, these other indicators can indicate the optimal entry point for a trade.

Referencing Other Charts

When a potential reversal zone has been identified, other charts with varying time frames should be referenced to determine the validity of the set-up. For example, if you are using a daily chart, weekly or intra-day charts should be examined to determine the optimal trade execution point. In particular, intra-day charts, such as 15, 30 or 60-minute time frames, provide even greater guidance for a successful trade execution.

When a potential reversal zone is identified, there are often 3, 4 or more harmonic calculations that define the area. The problem lies in knowing which number within that zone will prove to be the reversal point.



Weekly and intra-day charts contain similar pattems and Fibonacci retracements that are observed on daily charts. Therefore, if these other charts are cross-referenced with the daily set-ups, greater accuracy can be achieved in the trade execution.

The convergence of other time frame projections is very effective in defining the optimal point for a trade execution. Even when there are no pattems present on intra-day charts, Fibonacci retracements can provide greater indication for further reversal confirmation. For example, lets say that you have identified a set-up on a daily chart that suggests good potential for a rally. We are looking to buy in a bullish potential reversal zone. However, this area has Fibonacci numbers and a pattem that have defined an area that is a rather large point range. It would be very helpfiil to consult a 15-minute chart, for instance, to determine the area within the reversal zone, which would be the most advantageous entry point.

The following chart of America Online demonstrates this technique. AOL formed a very harmonic set-up in June 1999. However, the stock was very volatile, as AOL declined from a high of 175 1/2 and bottomed at 89 1/2.

AB=CD @ 103 5/8 ab=cd ( 104 3/4

170 160 150 140

ONLINE (AOL): DAILY ®Bisch,rt. BULLISH BUTTERFLY WITH BULLISH AB=CD

lllllllllllllllllllllllllllllllll



The potential reversal zone possessed five numbers that defined an excellent area to buy the stock somewhere around 100. Although the potential reversal zone was rather large, it was still a very harmonic set-up. There were two pattems, a bullish Butterfly and a rather significant AB=CD pattem, that converged in this area. Both of these pattems defined a rather large potential reversal zone between 97 and 104 5/8.

There was another significant retracement that converged with the completion of the bullish Butterfly. The next chart shows the 50% retracement from a long-term low to the recent high that was calculated at 96 3/8. This is very substantial because it was less than a point beyond the 1.27 of XA. In addition, it was a retracement that was nearly a year in length.

ONLINE (AOL): DAILY

50% RETRACEMENT

©BigCharts.com

Sep Oct Nou Dec 99 Feb flar Apr fla; Jun



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