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Access The Full Harmonic Trading Guide
Now that we know what Harmonics patterns are, let’s take a
look at some of the examples of the same. Most of the traders today use the
Gartley chart pattern for trading. Other popular harmonic patterns that are
traded include the Bat, Butterfly, Crab and Cypher patterns.
The Gartley Pattern
In the chart above, let’s take a look at the Gartley
pattern. Created by H.M Gartley, this pattern was introduced by him in the book
‘Profits in the Stock Market’. This pattern is also referred to as the Gartley
222. The chart features black lines that represent 4 price movements within the
chart. While, blue lines as well as the values in percentage represent the
retracement point between each and every level, the arrows in green represent
the potential movement in the price patterns.
The Bat Pattern
This pattern is a modified version of Gartley chart pattern
and was designed by Scott Carney. A look at the chart will reveal that it has
lines which are symmetrical in shape. In fact, the pattern’s most crucial ratio
is 88.6 percent Fibonacci retracement ratio.
Thus, you can see that the Bat pattern draws similarity with
the Gartley pattern, but with different retracement levels. However, both the
patterns are known as internal patterns.
The Butterfly Pattern
Yet another modified version of Gartley pattern is the
Butterfly pattern that features the same 4 price movements. However, the levels
of retracement are completely different. This is known as the extension pattern
because the ‘D’ leg in it stretches outside the XA leg.
Thus, when you look at the Bearish and Bullish Butterfly
chart patterns, they indicate that AD price move should be stretching beyond
the earlier price movement of XA. This is exactly why the Butterfly pattern is
referred to as the external chart formation.
Types of Harmonic
Patterns
As already mentioned above, there are many types of
Harmonics patterns such as ABC Bullish/Bearish, AB=CD Bullish/Bearish, 3-Drives
Bullish/Bearish, Butterfly Bullish/Bearish, Gartley Bullish/Bearish, Bat
Bullish/Bearish, Crab Bullish/Bearish, Shark Bullish/Bearish and Cypher
Bullish/Bearish.
Conclusion
To sum up, the harmonic patterns are used for advanced
technical analysis that is carried out using the Fibonacci ratios. Traders who
use the harmonics patterns for trading must always have a solid strategy for
managing risk to avoid losses.