At the root of the methodology is the primary ratio, or some derivative of it (0.618 or 1.618).

Complementing ratios include: 0.382, 0.50, 1.41, 2.0, 2.24, 2.618, 3.14 and 3.618.

The primary ratio is found in almost all natural and environmental structures and events; it is also found in man-made structures.

Since the pattern repeats throughout nature and within society, the ratio is also seen in the financial markets, which are affected by the environments and societies in which they trade.

The trading method is largely attributed to Scott Carney, although others have contributed or found patterns and levels that enhance performance.

A trader may often see a pattern that looks like a harmonic pattern, but the Fibonacci levels will not align in the pattern, thus rendering the pattern unreliable in terms of the Harmonic approach.

This can be an advantage, as it requires the trader to be patient and wait for ideal set-ups.

The danger occurs when a trader takes a position in the reversal area and the pattern fails.

Therefore, as with all trading strategies, risk must be controlled.

These can be used to aid in the effectiveness of the harmonic pattern and enhance entry and exit performance.

Prices are constantly gyrating; therefore, it is important to focus on the bigger picture of the time frame being traded.

The fractal nature of the markets allows the theory to be applied from the smallest to largest time frames.

The Engulfing Trader Cheat Sheet