This amazing harmonic pattern strategy will give you a new understanding of the price action. Our team at Trading Strategy Guides knows the geometric patterns found in nature. The same deviations can be found in the financial markets, such as in harmonic patterns. This ability to repeat and create these intricate patterns is what makes the harmonic patterns of Forex so incredible. We also have training for the Fractal Trading Strategy.

Harmonic patterns are complicated patterns in the Forex market. If you want to start with a simpler price action pattern, we recommend the Head and Shoulders price pattern strategy.

 

 

 

We can distinguish six basic harmonic patterns in Forex:

  • Gartley Pattern  –  developed by HM Gartley, this pattern is the most widely used in the harmonic trading community. Using Fibonacci ratios, the Gartley pattern attempts to identify instances of breakouts, resistance and support. This pattern is characterized as an uptrend, followed by a small reversal, followed by a smaller uptrend, and completed by a larger reversal (forming an asymmetrical “M” or “W” shape).
  • Butterfly pattern – there are two different types of butterfly patterns; clumsy butterflies and clumsy butterflies. Like the Gartley pattern, these patterns are designed to reveal when a trend reversal is stronger than the original trend. Using the triangles created in the butterfly, traders can determine whether it is a short or long position to be the most profitable.
  • Scratch Pattern –  the scratch pattern is ideal for traders trying to identify precise price movements. This allows traders to maximize the returns on low volatility bonds. The crab pattern is similar to the butterfly pattern, but is more condensed. This makes it possible to capture smaller movements.
  • Bat pattern  -compared to the other patterns, the bat pattern is still a trapezoid, but more symmetrical. For both the bearish and the bullish pattern, the right side and the left side will be almost the same highs.
  • Shark Pattern – The shark pattern is one of the newer harmonic trading patterns and has been in use since 2011. The pattern uses a similar rotation sequence of five legs. The steep outlines and shallow dip in the center create a chart that resembles a dorsal fin. This is how the shark pattern gets its name.
  • Cypher Pattern  –  the cypher pattern is an advanced trading pattern that combines Fibonacci trading with other indicators (such as RSI). The cigar uses stricter Fibonacci ratios (usually less than 1), creating a ‘steeper’ visual appearance.

Each of these patterns will help you effectively issue effective stop losses and stop limits. To get a more comprehensive view of the market, it is useful to monitor several harmonic trading patterns at once.

There are many benefits of harmonic trading. For example, if you become an expert in one of the Forex harmonic patterns, you will know how to trade it on certain pairs. You can know when is the best time to trade and when the market is going to react in a certain way.

You become an expert on harmonic Forex patterns. A useful tool for trading this strategy is a harmonic pattern scanner or a dashboard that shows all the patterns on different instruments. However, we recommend that you learn the patterns well before using a scanner or instrument panel.

Our favorite time frame for the strategy for trading a wonderful harmonic pattern is the 1h, 4h or the Daily chart. For the sake of simplicity, we will refer to the Amazing Harmonic Pattern Trading Strategy as the AHPT trading strategy. We don’t want to go to lower time frames because after extensive backtesting we discovered that the Amazing Harmonic Pattern Trading Strategy works best on higher time frames.

If you want quick profits, check out our favorite day trading strategy, The Best Stochastic Trading Strategy – Easy 6 Step Strategy. It may be more suitable for your own needs. This strategy performs similarly and is suitable for trading other asset classes such as stocks, futures, options, etc.

Throughout this article, you will learn the effectiveness of this pattern on its strengths and weaknesses. You will also learn how to trade the Forex harmonic patterns effectively. This ability to repeat consistently makes the harmonic patterns of Forex attractive to our team at Trading Strategy Guides. We also have training on how to trade the Gartley pattern.

Before we start, let’s see what indicators we need to successfully trade the harmonic pattern trading strategy:

If you are not that good with geometry, most standard Forex trading platform has a harmonic pattern indicator. It can help you determine and measure the harmonic pattern of Forex. The Forex harmonic patterns use the Fibonacci numbers to define accurate trading points.

The harmonic pattern indicator allows you to call the turning points of the market with a high level of accuracy. Check out the Price Action Pin Bar Trading Strategy if you don’t have prior knowledge of what a reversal strategy looks like.

Now let’s jump to the rules of the AHPT trading strategy.

What is the Butterfly Harmonic Pattern?

In technical analysis, the Butterfly harmonic pattern is a reversal pattern consisting of four legs. A leg is a swing wave motion that connects and consists of a swing high and a swing low. You can identify the right swing to increase your profit.

Summary of the rules of the butterfly harmonic pattern:

  1. AB = 0.786 or 78.6% retracement of the XA swing leg;
  2. BC = minimum 38.2% – maximum 88.6% of AB swing leg;
  3. CD = minimum 1.618 – maximum 2.618 AB pivot;
  4. CD = minimum 1.272% – maximum 1.618% of the XA swing leg;

Definition of the harmony pattern of the butterfly.

The Butterfly harmonic pattern depends on the B point. It defines the structure and sets up the other measurements within the pattern to define the trading opportunities. According to the Butterfly pattern, the B point should have an accurate 78.6% retracement of the XA swing. Other rules that further redefine the structure include the BC projection which must be at least 1.618 measurements.

The Butterfly pattern must also contain an equivalent AB = CD pattern. This is a minimum requirement. However, the alternative 1.27AB = CD is more common for this structure.

The 1.27XA projection is the most important factor in the potential reversal zones. And finally, the C point should be within the range of 0.382-0.886 retracement.

You can start drawing the butterfly pattern once you have the first two legs of the pattern. Once you have the points X, A and B, you can start monitoring the price action. You can check if you confirm that wave C matches the Butterfly pattern rules.

The amazing harmonic pattern strategy rules

Now is the time to reveal the rules of the Amazing Harmonic trading strategy. We start with the most exciting part. This is always the entry point and continues with the rules for the stop loss and take profit orders.

There is one important thing we need to learn before we can actually define the rules of the harmonic pattern trading strategy. This gives an indication of the application of the Harmonic pattern indicator.

Step #1 How to Apply the Harmonic Pattern Indicator

I will guide you step by step through this process. All you have to do is follow this simple guide. See figure below for a better understanding of the process:

  • First, click on the harmonic pattern indicator which can be on the right side toolbar of the TradingView platform. In the MT4 terminal, you can locate the harmonic pattern indicator in the Indicators library.
  • Identify on the chart the starting point X, which can be any swing high or low point on the chart.
  • Once you find your first swing high/low, simply follow the market wave movements.
  • You should have 4 points or 4 high/low points that stick together and form the Forex harmonic patterns. Each swing leg must be validated and follow the rules for harmonic pattern strategy presented above.

Now we are going to give the entry rules for the clumsy harmonic pattern of Butterfly.

Bullish Butterfly Harmonic Pattern – buy entry

Ideally, as a trader, you want to participate in the completion of point D. As we established earlier, point D of the Butterfly Forex Harmonic Pattern can develop anywhere between 1.27 – 1.618 Fibonacci extension of a leg. Since the market is not a perfect place, we will initiate a buy order once the markets reach the F7 extension of 1.27.

In the above example we entered Fibonacci expansion, but we can already see that point D goes to 1.573 Fibonacci expansion. It is still within the 1.272 – 1.618 range confirming the bullish Butterfly harmonic pattern.

It’s still an excellent entry level.

The next logical question is where to place your protective stop loss.

Bullish Butterfly Harmonic Pattern – stop loss

For the Bullish Butterfly Harmonic Pattern, you normally want to place your protective stop loss below the 1.618 Fibonacci extension of the XA leg. This is the logical place to hide your stop loss. This is because any interruption automatically invalidates the Butterfly harmonic pattern.

So far we have defined the right entry point and stop loss location for the harmonic pattern trading strategy. It is now time to change our focus and define where to take the gains.

Bullish Butterfly Harmonic Pattern – earn profit

Adding more profits to the AHPT trading strategy will further enhance your trading experience. and it will affect the expected profitability because it will almost guarantee that you will earn a profit. The Forex harmonic patterns, while they are a reliable pattern, you want to be very aggressive with your profit target.

As the saying goes: “No one went broke by making a profit”

So where do you take your first partial profit?

See figure below:

The Amazing Harmonic Pattern Trading Strategy has a more conservative first partial profit target established at Point B. Normally, this is where you would expect to find some resistance on the retracement, as it is an important swing point.

We want to close the second part of our trade once we hit the 0.618 Fibonacci retracement of the CD leg. You can even aim for a retest of point A. Although this could be your next target once you are more experienced with the harmonic pattern indicator.

Check out the map below:

Note ** The above was an example of a BUY trade with the Bullish Butterfly Forex Harmonic Pattern. Use the same rules for the Bearish Butterfly Forex Harmonic Pattern for a SELL trade. In the figure below you can see a real example of SALE. You can do this using the Bearish Butterfly Forex Harmonic Pattern.

Don’t be discouraged if this chart looks confusing at first glance. Study the above rules and you will find that this trading example follows the strategic rules perfectly.

Closure:

For all harmonic patterns in Forex, and trading in general, precision is key. This is because we eliminate errors if we are as precise as possible. The strategy for trading harmonic patterns gives us the greatest probability of success. The great thing about the harmonic Forex patterns is that they recognize the areas where supply and demand come into focus. If you are a fan of demand and trading then read Trading and Supply – learn more about market movement. This is a great preface for trade and demand.

Thanks for reading!