6 Types of Harmonic Patterns for Your Forex Trading Success
In this article, we will discuss harmonious patterns. Learning that might be a little difficult, but once you can understand it will be able to help you to get a good profit. The overall idea of this pattern is to be able to estimate the probability of a retracement. We will use the tools we discussed earlier, namely Fibonacci Retracement and Extensions! Combining these tools will really help us to be able to distinguish the continuation area of an overall trend.
The name of the pattern is Harmonic Pattern. This pattern is relatively more difficult to understand, but if you have mastered it it can be useful to look for hidden opportunities. The basic idea of a harmonic pattern is to recognize the potential correction of a trend. It could be said is a way to steal the opportunity by finding the right time to defy the direction of the major trend.
Now, because this technique is an act of violating trading laws, aka violating the main rules of trading, namely the trend is your friend, then you must be really careful in applying it even if you have mastered the theory. However, in its development precisely the harmonic pattern can be used to recognize the potential continuation or continuation of the trend.
In this lesson, there are several things we will discuss:
- ABCD Pattern
- Three Drives pattern
- Gartley Pattern
- Crab Pattern
- Bat Pattern
- Butterfly Pattern
After you learn and can understand all the patterns above, try to look back, what you already have to trade on Forex.
1. ABCD Pattern
Let's begin this lesson with an easier harmonious pattern. To use this pattern, all you need is Fibonacci and a cautious eye. Both the Bullish or Bearish versions of the ABCD pattern, have AB and CD lines which we know as feet. While BC we are familiar with correction or tetracement. If you use a Fibonacci retracement of the AB leg, the BC retracement should touch up to the 0.618 level. Then the CD line should be at 1.272Fib. Extensions from BC. Easy isn't it? All you have to do is wait until the whole pattern is formed (touch point D) before taking a Sell or Buy position.
However, if you want to be more strict, here are the rules for a more valid ABCD pattern:
- The foot length of AB should be ama with the foot length of the CD
- The time when the price moves from A to B must be the same as when the price moves from C to D.
2. Three Drives Pattern
This pattern is similar to the ABCD pattern, the difference is that this pattern has three legs (known as drives) and two corrections or retracements. This pattern is the ancestor of the Elliott wave pattern.
As you can see in the picture above, A must be the 0.618 retracement of drive 1. Likewise, B must be 1,272 extensions of correction A and drive 3 must be 1,272 from correction B.
After the pattern is formed perfectly, that's the time where you can take a buy or sell position. If the price touches point B, you can take a buy or sell order in 1.272 so you will not lose a moment.
But first, it's good to see the rules that must be applied:
- The time when the price of completing drive 2 must be the same as the time when the price of completing drive 3.
Once there was a great trader, he was named Harold McKinley Gartley. He was a stock market advisor in the mid-1930s. His job is to analyze the behavior of the stock market. According to Gartley, he was finally able to solve two big problems from a trader is what and when to buy. Over time, traders realize that these patterns can be applied to other markets. Since then, various books, software and other patterns have been created and developed based on Gartley's basic principles.
3. Gartley Pattern
The "222" Gartley pattern is named according to the H.M.Gartley book, Pofits in the Stock Market. The Gartley pattern is a pattern consisting of the basic ABCD patterns that we have discussed earlier, but added with a significant high or lowest level.
Now, this pattern is generally formed when a correction of the whole trend and looks like the letter "M" (or "W" in a bearish pattern). This pattern is used to help traders find a good point to take positions and follow / enter trends.
Gartley pattern is formed when prices are already in a trend both uptrend and downtrend, but have given a sign that a correction will appear. What makes the Gartley pattern set-up right when a reversal point is formed, a Fibonacci retracement level and Fibonacci extension. This gives a strong indication that prices may reverse direction.
This pattern is hard to see and when you see it, it can be very confusing. In some cases, the pattern may consist of a bullish or bearish ABCD pattern, but this occurs at point (X) which is behind point (D). The perfect Gartley pattern has characteristics such as:
- AB must be 0.618 retracement of XA
- BC must be at least 0.382 or 0.886 retracement of AB
- If the BC retracement is 0.382 from AB, then the CD must be 1,272 from C. If BC is 0.886 from AB, then the CD must be added 1,618 from BC 4. The CD must be 0.786 from XA.
4. Crab Pattern
Over time, the popularity of Gartley's patterns grew and many people tried their own variations. For several reasons, the inventor of some of these variations decided to name this pattern after the animal.
In 2000, Scott Carney, a harmonious pattern follower discovered the "crab" pattern.
According to him, this pattern is the most accurate pattern among harmonious patterns because it is so extreme the Potential Reversal Zone of XA. This pattern has a very high reward to risk ratio, because you can place very tight stop-losses.
The perfect crab pattern must have the following aspects:
- AB must be .382 or .618 retracement of XA
- BC can be as big as .382 or .886 retracement of AB
- If the BC retracement is .382 from AB, then the CD must be 2.24 from BC. And if BC is .886 from AB, then the CD must be 3,618 extensions from BC
- The CD must be 1,618 extensions from XA
5. Bat Pattern
In 2001, Scott Carney discovered another harmonious pattern which he called the "bat" pattern. This pattern was discovered by the .886 retracement of XA as a Potential Reversal Zone
The bat pattern has the following aspects:
- AB must be .382 or .500 retracement of XA.2
- BC can be as big as .382 or .886 retracement of AB.3
- If the retracement of BC is .382 from AB, then the CD must be 1,618 extension from BC. And if BC is .886 from AB, then the CD must be 2,618 extensions from BC
- The CD must be .886 retracement of XA
6. Butterfly Pattern
Then the next pattern is the butterfly pattern. Created by Bryce Gilmore, the perfect butterfly pattern was found on the .786 retracement of AB.
Characteristics of this pattern include:
- AB must be .786 retracement of XA
- BC can be as big as .382 or .886 retracement of AB
- If the retracement of BC is .382 from AB, then the CD must be 1,618 extension from BC. And if BC is .886 from AB, then CD must be added 2,618 from BC
- The CD must be 1.27 or 1,618 extension from XA
Additional a few tips for Harmonic Pattern
- Look for the potential of a Harmonic pattern
- Measuring the potential of the Harmonic pattern
- Buy or Sell on the formed Harmonic pattern
With these 3 basic stages, you can get great opportunities that can help you to get profit.
The First Step
Look for the potential of a harmonic pattern
Wow, the picture above looks like a potential harmonious pattern! At this time we are not sure what kind of pattern is in the picture above. Like a three-drive pattern, but it can also be a bat or a crab pattern.
Measuring the potential of the Harmonic pattern
- BC of .618 retracement of AB
- CD of 1,272 extensions from BC
- The length of AB is approximately the same as the length of the CD
- This pattern corresponds to the bullish ABCD pattern, which is a strong buy signal
Buy or Sell Harmonic patterns that are formed
When the pattern has formed, all you have to do is respond by taking a buy or sell position. If you have to take long positions at D, which is 1,272 Fibonacci extensions from CB, and place stop-losses at a few pips below the price when you enter a position.
Easy right? Actually not really ... The problem with this pattern is that they are so perfect that sometimes it's hard to see. But with practice and can also with the help of indicators then this will become easier.
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