Harmonic Patterns of Technical Analysis !!!👨🏫In this post, I tried to show you the most important Harmonic Patterns of Technical Analysis . These patterns are more valid at higher timeframes.
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What is Harmonic Pattern ❗️❓
Harmonic patterns are chart patterns that form part of a trading strategy, and they can help traders to spot pricing trends by predicting future market movements. They create geometric price patterns by using Fibonacci numbers to identify potential price changes or trend reversals
Harmonic Patterns of Technical Analysis:
🦇 Bat 🦇 Harmonic Pattern:
The Bat pattern is a retracement and continuation pattern that occurs when a trend temporarily reverses its direction but then continues on its original course.
It gives you the opportunity to enter the market at a good price, just as the pattern ends and the trend resumes and has a bullish and bearish version.
It is similar to the Gartley pattern but completes at an 88.6% Fibonacci retracement of the X-A leg.
A true Bat pattern will include each of the following: the AB=CD pattern or an extension of this pattern; a 161.8% to 261.8% Fibonacci extension of the B-C leg; an 88.6% Fibonacci retracement of the X-A leg.
One way of trading a bullish Bat pattern is to place your buy order at point D (the 88.6% retracement of the X-A leg)
Place your stop loss just below point X.
Draw a new Fibonacci retracement from point A-D of the completed pattern and take profit at the point where the price will have retraced 61.8% of the distance between A-D.
To trade a bearish Bat pattern (a short/sell trade), simply invert the pattern and your orders.
🦇 ALT Bat 🦇 Harmonic Pattern:
The Alternate Bat Pattern is a precise harmonic pattern™ discovered by Scott Carney in 2003.
The pattern incorporates the 1.13XA retracement, as the defining element in the Potential Reversal Zone (PRZ).
The B point retracement must be a 0.382 retracement or less of the XA leg. The Alternate Bat pattern™ utilizes a minimum 2.0 BC projection. In addition, the AB=CD pattern within the Alternate Bat is always extended and usually requires a 1.618 AB=CD calculation.
The Alternate Bat pattern™ is an incredibly accurate pattern that works exceptionally well in the RSI BAMM divergence setup.
🦋 Butterfly 🦋 Harmonic Pattern:
The Butterfly is a reversal pattern that allows you to enter the market at extreme highs or lows.
It is similar to the Gartley and Bat patterns but the final C-D leg makes a 127% extension of the initial X-A leg, rather than a retracement of it.
To trade the Butterfly, enter the market with a long or short trade at point D of the pattern – the price should reverse direction here.
Place your stop loss just below (bullish trade) or above (bearish trade) the 161.8% Fibonacci extension of the X-A leg.
For an aggressive profit target, place your take profit order at point A.
For a more conservative profit target, place your take profit order at point B.
🥇 Gartley 🥇 Harmonic Pattern:
The Gartley pattern is a retracement pattern that occurs when a trend temporarily reverses direction before continuing on its course.
It includes the AB=CD pattern in its structure and gives you the chance to go long (bullish Gartley) or short (bearish Gartley) at the point where the pattern completes and the trend resumes.
It relies on Fibonacci levels, which determine how far price retraces or extends during the formation of the patterns – MetaTrader 4 can automatically add these levels to your chart.
To trade using the Gartley pattern, place your buy order at the point where the C-D leg achieves a 78.6% retracement of the X-A leg.
Place your stop loss just under point X.
Draw a new Fibonacci retracement from point A-D of the completed pattern and take profit at the point where the price will have retraced 61.8% of the distance between A-D.
🦀 Crab 🦀 Harmonic Pattern:
The Crab is a reversal pattern that allows you to enter the market at extreme highs and lows.
It is similar to the Butterfly pattern but the final C-D leg makes a deeper 161.8% extension of the initial X-A leg.
To trade the Crab, enter the market with a long or short trade at point D of the pattern – the price should reverse direction here.
Place your stop loss just below (bullish trade) or above (bearish trade) point D.
For an aggressive profit target, place your take profit order at point A.
For a more conservative profit target, place your take profit order at point B.
🦈Shark🦈 Harmonic Pattern:
The structure of a shark pattern has an impulse leg (X-A) and a retracement leg (B). In this case, the retracement has no particular value. The continuation leg (C) has to get to a Fibonacci extension of 113 percent of the B-A leg, but shouldn’t go beyond the 161.8 percent mark, a retracement for X-C follows afterward.
The shark pattern so obtained has to get to an extension of 88.6 percent of this retracement, but should not be more than 113 percent. The next Fibonacci extension will be B-C, which is an extension of the A-X leg, within the 161.8 to 224 percent range. But as far as entering a trade goes, it is different from other harmonic patterns, for example:
The entry point should be at an extension of 88.6 percent of the O-X leg, and the stops will follow up at point C
Targets can be at 61.8 percent of the B-C leg
It is not difficult finding the zone to enter trades. This is the area where the X-C Fibonacci retracement and the B-C Fibonacci extension overlap
The main factor that differentiates between the harmonic shark and other patterns is that it depends on the 88.6 percent and the 113 percent reciprocal ratios. Once the price point at D is created, prices decline or rally very quickly. Therefore it needs active management of the trade. In other words, you simply cannot set up the harmonic shark pattern and come back a while later to trade it. By that time price would have gone a major distance.
3️⃣ Three 3️⃣ Drives Harmonic Pattern:
The three drives pattern is a reversal pattern designed to highlight times when the market is exhausted in its current move.
The pattern has a bullish version and a bearish version.
The pattern is composed of three waves or drives that complete at a 127% or 161.8% Fibonacci extension.
The trade is entered in the opposite direction to the overall move when the third drive is completed at a 127% or 161.8% Fibonacci extension.
The stop loss goes below the 161.8% Fibonacci extension for a buy and above the 161.8% Fibonacci extension for a sell.
Draw a new Fibonacci retracement from the start of the pattern to the completion point of the pattern and take profit at the point where the price will have retraced 61.8% of that distance.
🔁 AB=CD 🔁 Harmonic Pattern:
The AB=CD pattern helps you identify when a price is about to change direction so that you can buy when prices are low and sell when they are high.
The pattern consists of three legs, with two equal legs labeled AB and CD, together they form a zig-zag shape – hence its nickname, the 'lightning bolt'.
It can be used in any financial market and in any time frame.
When a market is trending upwards, the first leg (A-B) is formed as the price rises from A to B.
At point B, the price switches direction and retraces down sharply to form the B-C leg – ideally a 61.8% or 78.6% retracement of the price increase between points A and B.
The price then continues its original uptrend, forming a C-D leg that should be the same length as the A-B leg.
Once you have decided where you think the pattern will complete (point D), you should place a sell order at this point and look to profit from a price reversal.
Place your stop loss a few pips above point D.
Drawing a new Fibonacci retracement from point A to D of the completed pattern and a take profit at the point where the price will have retraced 61.8% of the distance between A and D.
You would approach a downtrending market with a bullish (buy) trade at point D in exactly the same way – the pattern and your trading orders will simply be reversed.
