The most popular harmonic patterns include:
1. ABCD Pattern
2. Butterfly Pattern
3. Bat Pattern
4. Crab Pattern
5. Gartley Pattern
6. Shark Pattern
These harmonic trading patterns are often used by some top traders to identify potential trading setups, with an average win rate of up to 78.7%. Due to the difficulty of learning harmonics, ordinary traders find it hard to get started. Today I will conduct a lesson on harmonic pattern values. 👇👇👇
1️⃣ ABCD Pattern
The ABCD (or AB = CD) pattern is undoubtedly the simplest of all patterns, consisting of three segments and four points.
First is the impulse segment (AB), then the corrective segment (BC), followed by another impulse segment (DC) moving in the same direction as the AB segment. By using the Fibonacci retracement tool on the AB segment, the BC segment should precisely reach 0.618. The length of the CD line should be equal to that of the AB line, and the time taken for the price to move from point A to point B should be equal to the time taken from point C to point D.
Traders can choose to place orders in the area near point C (defined as a potential reversal zone); or they can wait until the entire pattern is completed to establish long or short positions from point D.
2️⃣ Bat Pattern
The bat pattern is named because its final shape resembles a bat. The bat pattern was identified by Scott Carney in 2001 and consists of precise elements that can identify potential reversal zones (PRZ).
The bat pattern has one more segment than the ABCD pattern and also has an additional point, which we call point X. The first segment (XA) leads to the BC retracement segment. If the retracement at point B stops at 50% of the initial XA segment, what you might see is a bat pattern.
The CD extension must be at least 1.618 of the BC segment and may reach a height of 2.618. The extension of CD must not be lower than that of BC, otherwise, the data becomes invalid. The endpoint (point D) creates a potential reversal zone (PRZ), meaning traders can open positions in anticipation of a bullish or bearish price reversal.
3️⃣ Butterfly Pattern
The butterfly pattern was discovered by Bryce Gilmore, who used different combinations of Fibonacci ratios to find potential retracement levels.
The butterfly pattern is a reversal pattern consisting of four segments, marked as XA, AB, BC, and CD. The most important ratio to define is the 0.786 retracement of the XA segment. This helps to plot point B, thus assisting traders in identifying potential reversal zones (PRZ).
4️⃣ Crab Pattern
The crab pattern was also discovered by Scott Carney, following the pattern of XA, AB, BC, and CD, allowing traders to enter at extreme highs or lows.
The most important feature of the crab pattern is the 1.618 extension of the XA segment, which determines the potential reversal zone. In a bullish crab pattern, the first segment is formed when the price rapidly rises from point X to point A. The AB segment retraces between 38.2% and 61.8% of XA. After that is the extreme projection of the BC segment (2.618-3.14-3.618), which can determine the effective area where this pattern is completed and the current trend may reverse.
The bearish crab pattern tracks the process of price moving from point X down to point A, then gently rising, slightly falling, and finally rapidly rising to point D.
5️⃣ Deep Sea Crab Pattern
This is slightly different from the crab pattern outlined above. The only difference is in the B point retracement, which must be 0.886 of the XA segment and not exceed point X.
The projection range of the BC segment can be from 2.24 to 3.618.
6️⃣ Gartley Pattern
The Gartley pattern created by H.M. Gartley has two main rules:
The B point retracement must be 0.618 of XA.
The D point retracement must be 0.786 of the XA segment.
The Gartley pattern is similar to the bat pattern in that the XA segment leads to the BC retracement, except that the B point retracement must be exactly 0.618 of XA. The stop-loss point is often at point X, while the take-profit point is often set at point C.
7️⃣ Shark Pattern
The shark pattern was also discovered by Scott Carney and has some similarities with the crab pattern. The shark pattern consists of a reversal pattern made up of five segments, marked as point O, point X, point A, point B, and point X.
The shark pattern must satisfy the following three Fibonacci rules:
The AB segment should show a retracement level of 1.13 to 1.618 of the XA segment.
The BC segment will be 113% of the OX segment.
The target for the CD segment is 50% of the Fibonacci retracement level of the BC segment.
All shark pattern trades are based on point C, while point D serves as a predetermined take-profit point.
8️⃣ Three Drives Pattern.
Three drives setups or patterns rarely occur because they require symmetry in both price and time. This pattern consists of a series of drivers and retracement lines. A total of 5 points make up the three drives formation. Three points (1, 2, 3) represent the ends of the three drivers moving with the trend. Two points (A, C) mark the endpoints of the two retracements that occur between the drivers. The idea behind the three drives setup is that when the third driver (moving with the current trend) ends, the price will reverse direction. Of course, this pattern can be bullish or bearish. The example below outlines the parameters for a bullish setup. The bearish setup is simply the reverse of these conditions.
Bullish Three Drives Pattern:
Always remember that price and time symmetry is crucial for the formation of this pattern.
Drivers 2 and 3 should be specific extensions of A and C retracements. The extensions should be 127.2% or 161.8%.
A and C retracements are usually 61.8% or 78.6% of the previous fluctuations. Possible exceptions occur in strongly trending markets. If the market trend is strong, these retracements may only be 38.2% or 50%.
The time (horizontal distance) of A and C retracements should be as close to symmetry as possible. The same goes for extensions (the second and third drivers are at the bottom).
It is important to remember that this particular pattern is rare. This means that traders should not try to impose patterns on the chart. If the formation contains price gaps or is not symmetrical enough (it can vary slightly), it is best to abandon the pattern and move on.
Common Questions:
How to Identify and Draw Harmonic Patterns?
The method of identifying and drawing harmonic patterns depends on the type of market movement (bearish or bullish). Therefore, while there are many different harmonic patterns, they can generally be divided into two categories: bearish patterns and bullish patterns.
Comparison of Bearish and Bullish Harmonic Patterns: What’s the Difference?
Bullish traders believe the market is about to experience price upward, while bearish traders think the market is on a downward trajectory. The same rules apply when understanding bearish and bullish harmonic patterns.
If a series of harmonic patterns indicate that the market is rising, bullish traders can use this view to build long positions in the selected market to profit from the upward trend.
If traders detect a bearish harmonic pattern, they may want to start shorting the market based on the assumption that the price will decline.
How to Start Trading with Harmonic Patterns
If you want to start using harmonic patterns for trading, please follow these steps:
(1) Spend some time learning the theory behind harmonic patterns.
(2) Determine whether to follow a bearish or bullish strategy.
(3) Open a trading account with us, and then start looking for harmonic patterns in the selected market.
Summary of Harmonic Patterns
(1) Traders use harmonic patterns to help predict future market movements.
(2) Traders can use bearish or bullish harmonic patterns.
(3) Bearish harmonic patterns indicate that the market may go down.
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