COPYRIGHT HARMONICTRADER.COM, L.L.C. 2007

Harmonic Trading of the Financial Markets: Volume Two

(Excerpt 3)

By Scott M. Carney

Library of Congress

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Extreme Bearish Harmonic Impulse Wave

   The Extreme Bearish Harmonic Impulse Wave is a distinct structure that requires a few essential elements to validate the structure.    After an extended decline (0-X), the price action typically experiences a brief consolidation that results in a nominal new low.  This consolidation area (X, A, B) is followed by an extended rally to at least the 1.618 AB extension area. 

 

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    This BC segment rally is the most important aspect of the structure, as it manifests the extreme and impulsive nature of the setup.  In fact, these structures frequently form within many defined bearish channels and they can offer excellent opportunities to sell over-extended rallies that are counter to the primary trend.

Light Sweet Crude March 2006 Contract (CL_H6): 5-Minute

Extreme Bearish Harmonic Impulse Wave

  The nature of the Extreme Bearish Harmonic Impulse Wave is exemplified in this chart.  The 2006 March Crude contract was declining steadily until it rallied sharply to form the Extreme Bearish Harmonic Impulse Wave.  The price action bounced quickly to test the 2.0 impulse extension. 

                                                                                   B
 

                                                                           2.0
 

                                                                     

0
 

                                     

                                                                                                    C
 

                         

                                                                 A
 

                                         

                                                    X
 

   The price action reversed quickly after testing the impulsive extension and continued lower, as the predominant down trend squashed the brief rally.  Situations like these develop frequently on intra-day charts and they can identify excellent opportunities to take advantage of over-extended short-term rallies within established down trends.