Harmonic Price Patterns
Harmonic patterns are formations based on geometry and mathematical fractals. The basic concept behind harmonic trading is primary ratio and its derivatives (1.618, 0.618, etc.). Harmonic patterns work as powerful signs of potential trend reversals and can be either bullish or bearish.
Which are the Basic Harmonic Patterns?
There are six (6) basic harmonic patterns. These formations are more reliable when trading in M30 and higher timeframes. The general win / lose ration of harmonic trading strategies is above 70%.
- ABCD Pattern
- Three-Drive Pattern
- Gartley 222 Pattern
- Harmonic Bat Pattern
- Harmonic Crab Pattern
- Harmonic Butterfly Pattern
Key Issues for trading with Harmonic Patterns
These are some key issues when trading with harmonic patterns:
- Traders should open their Long or their Short Positions by the time a harmonic pattern is near to completion
- It is more reliable to identify harmonic patterns in longer timeframes (above M30)
- Harmonic Patterns in higher time frames should not conflict with each other
- In general, Risk / Reward ratio must be above 1:3
- Each harmonic pattern shows different behavior according to the market movement
Key questions when trading with Harmonic Patterns
- Does the price action indicates the existence of a potential pattern?
- What is this pattern?
- Is it a basic ABCD pattern or another harmonic pattern?
- Are there any other harmonic patterns in other timeframes that can confirm or can cancel this pattern?
- Do time cycles confirm the existence of this pattern? (Time symmetry)
- At what point this pattern will come to completion?
- At what price the pattern will not be longer valid? (Close to this price you may place your Stop-Loss order)
- What is the optimal price for taking my profits (Take-Profit order)
- What is the Risk/Reward of that trade? (Risk/Reward must be above 1:2 or even better 1:3)
- How much of my capital should I risk in this trade? (Choosing Capital Leverage)
■ What are Harmonic Patterns