Harmonic patterns are the geometric price patterns that uses Fibonacci numbers to pinpoint precise turning points in the chart. Unlike other trading methodologies, harmonic trading seeks to forecast future movements. Here are the key points about harmonic patterns:
1. Geometry and Fibonacci Numbers:
Harmonic trading combines patterns and math into a precise method. Harmonic Patterns are based on the premise that patterns repeat themselves. This notion of the repeating pattern comes from the Fractal geometry. If you do not understand that harmonic patterns are the part of the fractal geometry (Fractal Geometry concept was created and researched by the scientist called Benoit Mandelbrot), then you can have only very limited view or limited stratetgy in using harmonic patterns. Firstly, regards to the Fractal geometry , you will expect to see Harmonic Patterns of various size in the chart. Secondly, you can expect to see some harmonic pattern formation to be inside other Harmonic Pattern or other chart patterns. Some ratio related information about Harmonic Pattern are covered as in the following:
The primary ratio used is 0.618 (or some derivative of it) along with other complementing ratios like 0.382, 0.50, 1.41, 2.0, 2.24, 2.618, 3.14, and 3.618.
These ratios are found in natural structures, environmental events, and man-made structures. They also appear in financial markets influenced by their surroundings and societies.
By identifying patterns of varying lengths and magnitudes, traders apply Fibonacci ratios to predict future price movements.
2. Popular Harmonic Patterns:
Some popular harmonic patterns used in Forex and Stock market include:
Gartley pattern: A retracement and continuation pattern.
Bat pattern: Similar to the Gartley but with different ratios.
Crab pattern: A reversal pattern with extreme ratios.
Traders can use these harmonic patterns to predict trend reversals or continuation points.
3. Precision and Challenges:
Harmonic price patterns are precise but require specific magnitude movements for accurate reversal points.
Traders must wait for ideal set-ups, as patterns may look similar but fail due to misaligned Fibonacci levels.
While harmonic patterns can gauge the duration of current moves, they can also isolate reversal points.
However, there’s a risk: if the pattern fails, the trader may be caught in a rapid trend extension against their position.
Remember, as with any trading strategy, risk management is crucial. Harmonic patterns offer a fascinating blend of geometry, mathematics, and market analysis for those who seek precision in their trading decisions. These information should be serving as a failry simple guide line. You must conduct in depth study before using Harmonic Patterns for your trading.
Here are some guideline on Harmonic Pattern Trading. These several articles can help you to improve your performance.
Quick Guideline for Harmonic Pattern Plus for Starter