Harmonic Patterns are geometric price formations that derive from Fibonacci retracement. Established by H.M Gartley in 1932, Harmonic Patterns identify potential price changes or trend reversal levels.
These patterns consists of five different points marked by letters (X, A, B, C, D).
The types of Harmonic Patterns that we are going to analyse are:
The Gartley
The Bat
The Butterfly
The Cypher
The Crab
Gartley is arguably the most common harmonic chart pattern. Named after H.M. Gartley, who said that this pattern offers “one of the best trading opportunities.
As with every harmonic chart pattern, there are bullish and bearish versions of Gartley.
Gartley uses a combination of Fibonacci retracements to come up with a final level that generates a buy signal. The basic idea behind this chart pattern, as well as with other harmonic formations, is that the price action follows a specific pattern.
In essence, Gartley supporters believe that the price is likely to bounce from one Fibonacci specific level to the other until the final buy/sell signal is generated. This way, a geometric shape is formed, as illustrated in the photo below.
For Gartley to be verified as such, the following requirements must be fulfilled in the first place:
Ultimately, the point D signals a potential buy/sell trade.
The bearish Gartley follows the same guidelines, with the XA move being to the downside and the point D generating a sell signal.
A Bat pattern looks very similar to Gartley, but it has different measurements. It is also considered to be a continuation pattern as the overall trend extends and the last point (D) ends within the initial XA move. The entire structure looks more symmetric compared to the Gartley formation.
These are the guidelines to recognize a Bat pattern:
Unlike the first two harmonic patterns, point D in the Butterfly chart pattern ends outside of the initial XA move.
The following guidelines are in place for the Butterfly patterns:
The Cypher pattern is similar to Gartley, except that the BC correction should go beyond point A. Therefore, the BC is an extension of the AB move, rather than a retracement.
These are the guidelines to spot a Cypher pattern:
Extremely long extensions characterize the Crab pattern.
The following guidelines are in place for the Crab pattern:
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