Harmonic Patterns With Advanced Explanations Check It Out

2020년 12월 12일

Harmonic price patterns are those that take geometric price patterns to the next level by utilizing Fibonacci numbers to define precise turning points. Unlike other more common trading methods, harmonic trading attempts to predict future movements.


Let's look at some examples of how harmonic price patterns are used to trade currencies in the forex market.

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KEY TAKEAWAYS
Harmonic trading refers to the idea that trends are harmonic phenomena, meaning they can subdivided into smaller or larger waves that may predict price direction.
Harmonic trading relies on Fibonacci numbers, which are used to create technical indicators.
The Fibonacci sequence of numbers, starting with zero and one, is created by adding the previous two numbers: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc.
This sequence can then be broken down into ratios which some believe provide clues as to where a given financial market will move to.
The Gartley, bat, and crab are among the most popular harmonic patterns available to technical traders.

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Geometry and Fibonacci Numbers
Harmonic trading combines patterns and math into a trading method that is precise and based on the premise that patterns repeat themselves. 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

By finding patterns of varying lengths and magnitudes, the trader can then apply Fibonacci ratios to the patterns and try to predict future movements. The trading method is largely attributed to Scott Carney

although others have contributed or found patterns and levels that enhance performance.

Issues with Harmonics
Harmonic price patterns are precise, requiring the pattern to show movements of a particular magnitude in order for the unfolding of the pattern to provide an accurate reversal point. 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.


Harmonic patterns can gauge how long current moves will last, but they can also be used to isolate reversal points. The danger occurs when a trader takes a position in the reversal area and the pattern fails. When this happens, the trader can be caught in a trade where the trend rapidly extends against him. Therefore, as with all trading strategies, risk must be controlled.


It is important to note that patterns may exist within other patterns, and it is also possible that non-harmonic patterns may (and likely will) exist within the context of harmonic patterns. These can be used to aid in the effectiveness of the harmonic pattern and enhance entry and exit performance. Several price waves may also exist within a single harmonic wave (for instance, a CD wave or AB wave). 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.

To use the method, a trader will benefit from a chart platform that allows him to plot multiple Fibonacci retracements to measure each wave.

Types of Harmonic Patterns
There is quite an assortment of harmonic patterns, although there are four that seem most popular. These are the Gartley, butterfly, bat, and crab patterns.