Getting to know harmonic price patterns
Today is all about harmonic price patterns. They can be hard to spot, but once you do, it might lead you to hefty profits as they help traders see and pinpoint possible recent trend retracement. However, we might suggest that you look up topics about Fibonacci retracements and extensions before proceeding since they are vital in today's lesson. If we use all of these to spot harmonic price patterns, it will lead us to possible areas where the overall trend may continue.
Harmonic price patterns
There is more than one type of harmonic price pattern. In fact, there are six of them, namely: ABCD pattern, Three-drive pattern, Gartley pattern, Crab pattern, Bat pattern, and the Butterfly pattern. We will discuss the first two, which are ABCD and three-drive patterns. The idea behind all these that we mentioned is to wait to complete the pattern before deciding to go long or short.
Starting with the ABCD pattern
Spotting this pattern requires alert eyes and the Fibonacci charting tool. The ABCD pattern can either be a bullish or a bearish one. They are similar to how their lines are called. Line AB and line CD are also known as the legs, while line BC is known as the correction or retracement. If we use the Fibonacci retracement tool on leg AB, we should reach a 0.618 level of leg BC's retracement.
On the other hand, line CD should reach 1.272 Fibonacci extensions of line BC. Wait for the entire completion of the pattern before you decide to go long or short. And when we say wait for the pattern to complete, we mean that you should wait for it to reach point D.
Traders who are more careful and need more assurance follow a couple more rules to get a more valid and precise ABCD pattern. Let us hear them:
- Line AB's length should be the same as line CD's length.
- The time the price takes to travel from A to B and C to D should be the same.
Next, we have the three-drive pattern.
The three-drive pattern has a lot of similarities with the ABCD pattern. The only difference is that it has three legs and two corrections. Legs are also known as drives, and corrections are also known as retracements. Also, you will need alert eyes and the Fibonacci tool to spot them.
- Point A must be 61.8% of leg 1's retracement. Point B must be 0.618 of leg 2's retracement.
- Leg 2 must be the 1.272 of correction A's retracement. Leg 3 must be the 1.272 of correction B's retracement.
Wait for the whole pattern to finish before going on a long or short position. Please wait for it to reach point B before getting your long or short order at 1.272 extensions. Traders who are more careful check and follow these two additional rules:
- The completion time of leg two and leg three should be equal.
- The completion time of corrections A and B should be similar.
We hope to help you
We are hoping that this article will let you
have more tools and weapons when you trade. We have only covered two patterns,
and it might be wise if you check out more of them!
