• Harmonic Patterns
• Pattern Identification
• 5-point Patterns

## Harmonic Patterns • Harmonic patterns foundation was laid by H.M. Gartley in 1932 and later by Scott Carney in his books of “Harmonic Trading”
• Harmonic patterns reflect geometric price structures which adhere to Fibonacci ratio relationships
• These harmonic structures exhibits unique price movements and key turning or trend reversal points
• This factor is very helpful in trading as it provides highly trustful price entries and key levels for targets or stops
• Harmonic trading attempts to predict future movements, and this is what differentiates it from other indicators or oscillators

## Pattern Identification • Harmonic patterns are complex, but once a trader understands the pattern structure they can be spotted easily
• These patterns are either forming or completed “M” or “W” shaped structures or combinations of “M” and “W”
• All primary harmonic patterns are 5-point patterns with points (X, A, B, C, D)
• Price swings between these points are interrelated and have harmonic ratios based on Fibonacci
• Fibonacci ratios help traders in defining precise turning points in these patterns

## 5-point Pattern Example • All 5-point harmonic patterns have similar principles and structures, and they differ only by their ratios
• Harmonic patterns (5-point) have a critical origin (X) followed by an impulse wave (XA)
• Followed by a corrective wave to form the “EYE” of the pattern at (B) completing (AB) leg
• Then followed by a trend wave (BC)
• Finally completed by a corrective leg (CD) that ends around the Potential Reversal Zone • A possible pattern formation is identified after the first 3 legs (XA, AB, BC) are completed
• A potential trade setup is recognized as the last leg (CD) starts to develop
• Fibonacci extensions, retracements and projections are used to determine the Potential Reversal Zone
• All harmonic patterns have a clearly predefined Potential Reversal Zones (PRZ)
• The initiation of new trades should take place in this zone and only after price reversal action

## 5-Point Harmonic Patterns

Patterns looks similar and only differ based on the location of their key nodes

Among the most common 5-point harmonic patterns are:

• Gartley
• Bat
• Butterfly
• Crab
• Cypher
• Shark

## Bullish Gartley Pattern • B = 61.8% retracement of XA
• C = 38.2% to 88.6% retracement of AB
• D = 113% to 161.8% projection of BC
• D = 78.6% retracement of XA
• Long positions after clear bullish reversal
• Stop loss below the PRZ
• Target 1 = 38.2% retracement of AD
• Target 2 = 61.8% retracement of AD

## Bearish Gartley Pattern • B = 61.8% retracement of XA
• C = 38.2% to 88.6% retracement of AB
• D = 113% to 161.8% projection of BC
• D = 78.6% retracement of XA
• Short positions after clear bearish reversal
• Stop loss above the PRZ
• Target 1 = 38.2% retracement of AD
• Target 2 = 61.8% retracement of AD

## Bullish Bat Pattern • B = 38.2% or 50% retracement of XA
• C = 38.2% to 88.6% retracement of AB
• D = 161.8% to 261.8% projection of BC
• D = 88.6% retracement of XA
• Long positions after clear bullish reversal
• Stop loss below the PRZ
• Target 1 = 38.2% retracement of AD
• Target 2 = 61.8% retracement of AD

## Bearish Bat Pattern • B = 38.2% or 50% retracement of XA
• C = 38.2% to 88.6% retracement of AB
• D = 161.8% to 261.8% projection of BC
• D = 88.6% retracement of XA
• Short positions after clear bearish reversal
• Stop loss above the PRZ
• Target 1 = 38.2% retracement of AD
• Target 2 = 61.8% retracement of AD

## Bullish Butterfly Pattern • B = 78.6% retracement of XA
• C = 38.2% to 88.6% retracement of AB
• D = 161.8% to 261.8% projection of BC
• D = 127% to 161.8% projection of XA
• Long positions after clear bullish reversal
• Stop loss below the PRZ
• Target 1 = 61.8% retracement of CD
• Target 2 = 127% projection of CD

## Bearish Butterfly Pattern • B = 78.6% retracement of XA
• C = 38.2% to 88.6% retracement of AB
• D = 161.8% to 261.8% projection of BC
• D = 127% to 161.8% projection of XA
• Short positions after clear bearish reversal
• Stop loss above the PRZ
• Target 1 = 61.8% retracement of CD
• Target 2 = 127% projection of CD

## Bullish Crab Pattern • B = 38.2% to 61.8% retracement of XA
• C = 38.2% to 88.6% retracement of AB
• D = 261.8% to 361.8% projection of BC
• D = 161.8% projection of XA
• Long positions after clear bullish reversal
• Stop loss below the PRZ
• Target 1 = 61.8% retracement of CD
• Target 2 = 127% projection of CD

## Bearish Crab Pattern • B = 38.2% to 61.8% retracement of XA
• C = 38.2% to 88.6% retracement of AB
• D = 261.8% to 361.8% projection of BC
• D = 161.8% projection of XA
• Short positions after clear bearish reversal
• Stop loss above the PRZ
• Target 1 = 61.8% retracement of CD
• Target 2 = 127% projection of CD

## Bullish Cypher Pattern • B = 38.2% to 61.8% retracement of XA
• C = 127% to 141% projection of XA
• D = 127% to 200% projection of BC
• D = 78.6% retracement of XC
• Long positions after clear bullish reversal
• Stop loss below the PRZ
• Target 1 = 38.2% retracement of CD
• Target 2 = 61.8% retracement of CD

## Bearish Cypher Pattern • B = 38.2% to 61.8% retracement of XA
• C = 127% to 141% projection of XA
• D = 127% to 200% projection of BC
• D = 78.6% retracement of XC
• Short positions after clear bearish reversal
• Stop loss above the PRZ
• Target 1 = 38.2% retracement of CD
• Target 2 = 61.8% retracement of CD

## Bullish Shark Pattern • B = 38.2% to 61.8% retracement of XA
• C = 113% to 161.8% projection of AB
• D = 161.8% to 224% projection of BC
• D = 88.6% to 113% retracement / projection of XC
• Long positions after clear bullish reversal
• Stop loss below the PRZ
• Target 1 = 38.2% retracement of CD
• Target 2 = 61.8% retracement of CD

## Bearish Shark Pattern • B = 38.2% to 61.8% retracement of XA
• C = 113% to 161.8% projection of AB
• D = 161.8% to 224% projection of BC
• D = 88.6% to 113% retracement / projection of XC
• Short positions after clear bearish reversal
• Stop loss above the PRZ
• Target 1 = 38.2% retracement of CD
• Target 2 = 61.8% retracement of CD • Harmonic patterns provide future price projections and stop levels in advance and are considered leading indicators
• Harmonic patterns are frequent, repeatable, reliable and do produce high probable setups
• Their trading rules are relatively standardized using Fibonacci ratios
• Works on all timeframes and on all market instruments
• Other momentum indicator theories (CCI, RSI, MACD, DeMark…) can be used along with them 