BAMM Theory: RSI BAMM, Final review, Harmonic Trading

FINAL RSI BAMM REVIEW

The RSI BAMM represents a significant evolution in the Harmonic Trading approach. The integrative strategies embodied within the RSI BAMM clearly demonstrate effectiveness of multiple confirmation techniques to define trade opportunities. Although others—including Welles Wilder himself—have presented research that discusses the basic concepts of divergence as it relates to Relative Strength, I believe that this technique that incorporates harmonic measurement strategies is the most precise means of quantifying this technical phenomenon. In fact, the inclusion of harmonic patterns to act as structural signals to further refine these divergent situations presents an immensely accurate system that quantifies precise technical levels of potential harmonic support and resistance in an unprecedented fashion.

Since discovering the RSI BAMM, the price zones of support and resistance that incorporate both the RSI and PRZ measurements have immensely improved the basic pattern identification techniques. These unprecedented strategies advance the basic tenets of the Harmonic Trading approach to define unique situations where harmonic pattern completions are especially significant.

The RSI BAMM includes the following steps:

Step 1: Initial Test of the Extreme RSI Limit

Step 2: Complete M- or W-Type Complex RSI Structure

Step 3: Define the RSI Trigger Bar

Step 4: Assess Reaction of RSI and Price

Step 5: The Final Phase—Divergence of RSI Versus Price

Step 6: RSI BAMM Confirmation Point: 1.13 Versus 1.618

Step 7: Pattern Completion at the RSI BAMM Confirmation Point

Although each step must be assessed carefully, this approach clearly defines the required elements to validate the RSI BAMM conditions. Although the pattern completion is the last step in the process, the integration of the PRZ and the RSI BAMM Completion Point is dependent upon each of the prior steps to be satisfied to trigger this technical phenomenon. These requirements must be met before any pattern can be considered to define a trade opportunity. It is important to review some of the most critical elements of the RSI BAMM.

RSI BAMM TIPS

• Look for the Extreme RSI Complex indicator reading to initiate the setup.
• Look for the initial reaction of the complex RSI reading to retest the 50 limit reading at a minimum before completing the Confirmation Point.
• Wait for the divergence of RSI and price, as long as the impulsive RSI retest of the extreme limit does not exceed the reading of the prior complex structure.
• The execution of the trade is triggered at the completion of the relative harmonic pattern that completes at the appropriate RSI BAMM extension level.
• The Acceleration Trigger provides an extremely effective final confirmation signal when it develops following the RSI BAMM Confirmation Point.

The concept of divergence is quantified effectively by the RSI BAMM approach. As a trader, I am constantly analyzing charts, looking for the best opportunities that signal a significant change in the primary trend. The combination of the RSI BAMM approach with the completion of harmonic patterns creates a unique divergent situation that defines immensely accurate trading opportunities. Although these strategies may take some time to integrate into your current trading plan, the advanced techniques represent a substantial advancement of the entire Harmonic Trading approach and serve to filter the best pattern completions. In the years to come, I firmly believe that the RSI BAMM and the other advanced strategies presented in this book will go a long way in helping you to turn patterns into profits—because that’s what this game is all about!

CONCLUSION

Harmonic Trading: Volume Two represents my most comprehensive research to date. The new patterns and trading strategies, especially the RSI BAMM, take the Harmonic Trading approach to a new level. These strategies refine the existing approach presented in my first two books. Volume Two incorporates new measurement techniques, providing more accurate technical information and optimizing trade decisions. Although these concepts include new elements to define harmonic price behavior, this analysis still adheres to the primary tenets of the Harmonic Trading approach of pattern recognition as quantified by Fibonacci ratios. Although this material encompasses new technical measures, the same analytical process is applied to identify harmonic price behavior.

IS THIS REALLY HARMONIC TRADING?

Despite the effectiveness of the RSI BAMM, you might be asking: “Is this really Harmonic Trading?” To answer this, we need to ask the proverbial question: “What is Harmonic Trading?” The answer is

“Harmonic Trading is a methodology that utilizes the recognition of specific structures that possess distinct and consecutive Fibonacci ratio alignments that quantify and validate harmonic patterns. These patterns calculate the Fibonacci aspects of these price structures to identify highly probable reversal points in the financial markets.…

The identification of historically repetitive price patterns is the primary means that these techniques utilize to interpret the market’s signals. It is in this effective price pattern identification ability that Harmonic Trading possesses its greatest advantages. The precision and accuracy of the specific pattern alignments define a consistent and effective approach that can be easily applied. Furthermore, each distinct pattern acts as a model for the basis of all trading decisions. Once a potential pattern is identified, the trading opportunity can be managed according to a defined set of rules that are particular for each situation. Although each pattern possesses different elements, Harmonic Trading does identify specific repetitive situations within the chaos of the financial markets.”

In essence, the techniques in Volume Two utilize pattern recognition and Fibonacci ratios to define unique technical support and resistance levels. Although the analysis in this material addressed indicator structures and employed new patterns to define harmonic price behavior, the measurement tools are consistent with the Harmonic Trading methodology.

WHAT’S MORE IMPORTANT: RSI BAMM OR HARMONIC PATTERNS?

Without a doubt, the strategies presented in this material—in particular, BAMM Theory and the RSI BAMM—are practically a trading system unto themselves. This could be a costly fact for me to mention. Why trade harmonic patterns when the RSI BAMM works so well on its own? There’s no doubt that both harmonic price pattern recognition strategies and the RSI BAMM approach can be effective in their own right. But their true effectiveness can be seen when they work in concert with each other. When techniques of multiple approaches come together and yield the same result, the probability for a successful trading opportunity is extremely high.

Harmonic patterns represent the starting point for the entire methodology. The effective measurement techniques presented in my first two books offered a comprehensive system that effectively deciphered price action and determined trade opportunities. However, the material within Volume Two identifies an unprecedented technical situation where both the RSI and the pattern completion converge to identify an extremely precise trading opportunity. Again, this is where the confirmation of multiple technical methods gives a much greater probability of a valid reversal and possibly a more significant move. Despite this “dual approach,” I must emphasize that patterns are still more critical within the Harmonic Trading approach than the RSI BAMM. In fact, I would not recommend executing an RSI BAMM setup without a pattern.

As my research has continued through the years, the advantage of defining specific “technical entities” such as the RSI BAMM within the context of harmonic price behavior has yielded consistently reliable information regarding the potential state of future price action. When harmonic patterns develop in specific technical situations, their completion typically represents a critical point within the predominant trend. This specification improves the overall comprehension of the price action and creates a defined system to identify valid trade opportunities. Therefore, it is always important to be as precise as possible.

In closing, I want to thank you for taking the time to study this material. I truly believe that these unprecedented strategies are extremely effective in discovering the most profitable trading opportunities. In my opinion, the material in this book represents the most significant advancement of the entire Harmonic Trading approach since its inception, as well. Finally, I hope that these new ideas are embraced within the field of Technical Analysis as widely as the initial concepts of this approach have been accepted.