What are Harmonic Patterns
Harmonic patterns are successful in more than 70% predictions of identifying the price reversals and so are quite powerful and mostly give easiest entry and exit price points. These patterns apply specific Fibonacci Extensions and Fibonacci Retracements to the price structure. These patterns are most advantageous because the use of guesswork is least and the pattern depends on the fixed Fibonacci numbers. Reversal points of high probability are determined by this pattern. Harmonic methodology assumes the repetition of the trading patterns. The key is to open or close a position when there is high probability of a historic price action to repeat. Fxstay Broker traders wrote different kind of Harmonic Patterns
Principles of the Harmonic Patterns
Principles of the Harmonic Patterns are based on the Elliott Wave and Simple Geometry. Specific price structures define the Harmonic Patterns. The Harmonic Patterns are quantified by the Fibonacci calculations. These patterns contain the combinations of consecutive and distinct Fibonacci Projections and Retracement. By the Fibonacci calculation, Harmonic Patterns can signal a specific area to concentrate for the possible turning points in the price of any currency. The Patterns are useful on any time frame such as daily, weekly, monthly or annually. These patterns also hold good for the intraday time frame. Some important rules of the Harmonic Patterns that the traders and investors must know are listed as below.
Specific price structures repeat when the market is in chaos.
Fibonacci Ratios are required and must be used for prediction.
Harmonic Patterns can signal the possible future price action.
The Patterns should not be used alone but for confirmation, these patterns should be used with other methods.
Types of Forex Harmonic Patterns
Different types of Patterns are known in the Forex Trading such as the Gartley Pattern, Bat Pattern, Butterfly Pattern and the Crab Pattern but the Gartley Pattern is the most common pattern in all the patterns.
In the Gartley Pattern, the two corrective waves form with in the boundary of the former impulsive wave. The two waves are equal in price and time (AB=CD). In this pattern, the reliable reversals are given by the Fibonacci Ratios of 0.786 Retracement and 0.618 Retracement.
Bat Pattern is the second type of Harmonic Pattern in which the reliable reversals are given by the Fibonacci Ratios of 0.886 Retracement and 0.382 Retracement.
Butterfly Pattern is the third type of Extended Harmonic Pattern in which the reliable reversals are given by the Fibonacci Ratio of 0.786 Retracement.
Crab Pattern is the fourth type of Extended Harmonic Pattern in which the reliable reversals are given by the Fibonacci Ratio of 0.382 Retracement and 0.618 Retracement. It is the most accurate pattern that has fixed ratios.