Harmonic Patterns - FX & VIX Traders Blog (2024)

Harmonic patterns play a crucial role in technical analysis as they help predict future price movements, making them an effective trading strategy that leverages Fibonacci retracement and extension ratios.

However, the Fibonacci ratios for the analysis and measurement of Harmonic patterns are 0.382, 0.50, 0.786, 0.886, 1.27, 1.41, 1.618, 2.0, 2.24, 2.618, 3.14, and 3.618.

To ensure the validity of patterns, it is key for Fibonacci levels to align with accurate Fibonacci wave measurements.

Moreover, the application of Harmonic pattern is essential in determining the anticipated duration of price movement and pinpointing the precise reversal point.

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The formation of a Harmonic pattern typically involves connecting four swing high/low points together, often utilizing the Zig Zag indicator.

This strategy provides a heightened likelihood of achieving favorable outcomes, while concurrently aiding in the identification of demand and supply zones.

Technically, Harmonic patterns can be found within various patterns and are applicable across multiple time frames, as long as the trend exhibits a wavy structure.

Drawing harmonic patterns on higher time frames (from 1 hour and upwards) is crucial since lower time frames tend to contain more noise, which can potentially undermine the effectiveness of these patterns.

The combination of Elliott Wave principles and the analysis of Harmonic Patterns provides experienced traders with a distinct advantage when it comes to achieving successful trading outcomes in currency pairs.

The four most popular patterns are the Gartley, Butterfly, Bat and Crab patterns. We also have the Shark and the Cypher patterns.

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How to Draw Harmonic Patterns:

Step 1:

Load Zig zag custom indicator on the chart (see settings below).

This trading chart will look like this (see image below).

Step 2:

Count/identify the last four zigzag lines.

Step 3:

Label the starting point of Zigzag line 1 as X, also label the end point as A. Label the end point of line 2 as B, and label the end points of line 3 and 4 as C and D respectively as shown in the image below.

Step 4:

Identify the type of pattern that is formed. For example, in the chart above, point A is higher than point C. Point X is also way higher than point D.

This indicates that a Bearish Cypher pattern is possibly forming on the chart.

However, point D must break higher than point B for a Bearish Cypher pattern to be complete.

Step 5:

Identify the correction and extension lines from point A to D. From the image above, line A-B is a correction of line X-A.

Line B-C is an extension of line A-B.

Types of Harmonic Patterns:

Gartley Pattern(Wave A to D is correction-correction-extension)

For Bullish Gartley pattern, BA price move is the correction of XA. BC price move is a retracement of AB price movement while CD price move is an extension of wave BC.

Point B is 0.618 retracement of impulsive wave XA. Point C is 0.382 to 0.886 retracement of wave AX. Point D is 0.786 retracement of XA.

The long position is usually entered at point D after bullish price action is confirmed (that is, waiting for the price to start an upward movement).

Looking at the Bearish Gartley pattern, BA price move is the correction of XA. BC price move is also a retracement of AB price movement while CD price move is an extension of BC price movement.

Also, Point B on Bearish Gartley pattern is 0.618 retracement of impulsive wave XA. Point C is 0.382 to 0.886 retracement of wave AX. Point D is 0.786 retracement of XA. The short position is usually entered at point D after bearish price action is confirmed(that is, waiting for the price to start a downward movement).

Bat Pattern(Wave A to D is correction-correction-extension)

Analyzing the Bearish Bat pattern, BA price move is the correction of XA. BC price move is also a retracement of AB price movement while CD price move is an extension of waveBC.

Point B is a minimum of 0.382 to a maximum 0.50 retracement of impulsive wave XA. Point C is 0.382 to 0.886 retracement of wave AX. However, Point D is 0.886 retracement of XA.

The short position is usually entered at point D after bearish price action is confirmed(that is, waiting for the price to start a downward movement).

For the Bullish Bat pattern, BA price move is the correction of XA. BC price move is a retracement of AB price movement while CD price move is an extension of BC price movement.

Also, Point B on Bullish Bat pattern is a minimum of 0.382 to a maximum of 0.50 retracement of impulsive wave XA. Point C is is a minimum of 0.382 to a maximum of 0.886 retracement of wave AX. Point D is 0.886 retracement of XA.

The long position is usually entered at point D after bullish price action is confirmed (that is, waiting for the price to start an upward movement).

Butterfly Pattern(Wave A to D is correction-correction-extension)

Analyzing the Bearish Butterfly pattern, BA price move is the correction of XA. BC price move is also a retracement of AB price movement while CD price move is an extension of BC price movement.

Point B is 0.786 retracement of impulsive wave XA. Point C is a minimum 0.382 to a maximum 0.886 retracement of wave AX. Point D is 1.27 extension of XA.

A short position is usually entered at point D after bearish price action is confirmed(that is, waiting for the price to start a downward movement).

For the Bullish Butterfly pattern, BA price move is the correction of XA. BC price move is a retracement of AB price movement while CD price move is an extension of BC price movement.

Also, Point B on Bullish Butterfly pattern is 0.786 retracement of impulsive wave XA. Point C is minimum 0.382 to maximum 0.886 retracement of wave AX. Point D is 1.27 extension of XA.

A long position is usually entered at point D after bullish price action is confirmed (that is, waiting for the price to start an upward movement).

Crab Pattern(Wave A to D is correction-correction-extension)

Analyzing the Bearish Crab pattern, wave BA is the correction of wave XA. BC price movement is also a retracement of AB price movement. While CD is an extension of waveBC.

Point B is a minimum of 0.382 to a maximum of 0.886 retracement of impulsive wave XA. Point C is a minimum of 0.382 to a maximum of 0.886 retracement of wave AX.

Basically, Point D is 1.618 extension of XA. A short position is usually entered at point D after bearish price action is confirmed (that is, waiting for the price to start a downward movement).

For the Bullish Crab pattern, BA price movement is the correction of XA. BC price movement is a retracement of AB price movement, while CD price move is an extension of waveBC.

Also, Point B on the Bullish Crab pattern is a minimum of 0.382 to a maximum of 0.886 retracement of impulsive wave XA.

Point C is a minimum of 0.382 to a maximum of 0.886 retracement of wave AX. Point D is 1.618 extension of XA.

A long position is usually entered at point D after bullish price action is confirmed (that is, waiting for the price to start an upward movement).

SharkPattern(Wave A to D is correction-extension-extension)

Looking at the Bearish Shark pattern, wave BA is the correction of wave XA. BC price movement is an extension of AB price movement. While CD is an extension of waveBC.

Point B is a minimum of 0.382 to a maximum of 0.886 retracement of impulsive wave XA.

However, Point C is a minimum of 1.13 to a maximum of 1.618 extension of wave AX.

Point D is a minimum of 0.886 to a maximum of 1.13 retracement/extension of XA.

The short position is usually entered at point D after bearish price action is confirmed (that is, waiting for the price to start a downward movement).

For the Bullish Shark pattern, BA price movement is the correction of XA.

BC price movement is an extension of AB price movement, while CD price movement is an extension of waveBC.

Also, Point B on Bullish Shark pattern is a minimum of 0.382 to a maximum of 0.886 retracement of impulsive wave XA.

Point C is a minimum of 1.13 to a maximum of 1.618 extensionof wave AX.

While Point D is a minimum of 0.886 to a maximum of 1.13 retracement/extension of XA.

The long position is usually entered at point D after bullish price action is confirmed (that is, waiting for the price to start an upward movement).

Cypher Pattern (Wave A to D is correction-extension-extension)

Analyzing the Bearish Cypher pattern, wave BA is the correction of wave XA. Wave BC is an extension of wave AB. While CD is an extension of waveBC.

Point B is a minimum of 0.382 to a maximum of 0.618 retracement of impulsive wave XA.

However, Point C is a minimum of 1.13 to a maximum of 1.41 extension of wave AX. Point D is 0.786 retracement of XA.

A short position is usually entered at point D after bearish price action is confirmed(that is, waiting for the price to start a downward movement).

For the Bullish Cypher pattern, wave BA is the correction of wave XA. Wave BC is an extension of wave AB. While CD is an extension of waveBC.

Also, Point B on Bullish Cypher is a minimum of 0.382 to a maximum of 0.618 retracement of impulsive wave XA.

Point C is a minimum of 1.13 to a maximum of 1.41 extension of wave AX. Point D is 0.786 retracement of XA.

A long position is usually entered at point D after bullish price action is confirmed (that is, waiting for the price to start an upward movement).

AB=CD Pattern

Analyzing the Bearish ABCD pattern, wave BC is the correction of wave AB. While CD is an extension of waveBC.

Point C is a minimum of 0.618 to a maximum of 0.786 retracement of impulsive wave AB.

While Point D is a minimum of 1.27 to a maximum of 1.618 extension of BC.

The short position is usually entered at point D after bearish price action is confirmed (that is, waiting for the price to start a downward movement).

For the Bullish ABCD pattern, wave BC is the correction of wave AB. While CD is an extension of waveBC.

Point C is a minimum of 0.618 to a maximum of 0.786 retracement of impulsive wave AB.

However, Point D is a minimum of 1.27 to a maximum of 1.618 extension of BC. The long position is entered at point D after bullish price action is confirmed (that is, waiting for the price to start an upward movement).