Identifying Harmonic Pattern

Financial Technical Analysis Crypto Narrative Chapter 7 Harmonic Pattern


In Chapter 5, we draw lower and upper trend line to identify classic chart patterns but in this chapter we use Chapter 6 Fibonnaci Golden Ratios to measure harmonic chart patterns. Most harmonic patterns have 5 phases forming XABCD pattern. To quickly identify them is to find 2 mountains for bullish harmonic patterns and 2 wells for bearish harmonic patterns. The next thing to see is whether one of the mountains or wells is shorter than the other. Finally, the middle point is higher than the first and last point for bullish harmonic patterns and lower than the first and last point for bearish harmonic patterns. In short should look similar to an imperfect "M" letter for bullish harmonic patterns and imperfect "W" letter for bearish harmonic patterns.

1.harmonic-series.PNG

The harmonic patterns are said to be inspired from music and wave theories of harmonic ratios. For example from José Rodríguez Alvira, Harmonic Series, an Octave have a ratio of 130 Hz / 65 Hz = 2. Harmonic patterns are defined by the measurements of Fibonacci Golden Ratios on the XABCD pattern.

The Most Popular Harmonic Patterns

Measuring Harmonic Patterns

2.draw-manual.gif

To measure a harmonic pattern after identifying one:

  1. Label the XABCD points.
  2. Pull a Fibonacci Retracement from X to A to get XB and XD parameter.
  3. Pull a Fibonacci Retracement from A to B to get AC parameter.
  4. Pull a Fibonacci Retracement from B to C to get XAB or XB ratio.

3.xabcd-tool.gif

In trading view, there is XABCD pattern tool where we do not need to measure manually like the previous steps for example in Metatrader. For upcoming trades, harmonic traders predicts the next Fibonacci Retracement Golden Ratio. Then they put a buy or sell limit with a certain stop loss percentage for example 5%. The previous examples are Bullish Gartley harmonic pattern. I found the Forex market having very precise Fibonacci Golden Ratio numbers when harmonic pattern occurs but not so precise with the cryptocurrency market especially if we use the candle's shadow instead of the closing price. This is probably because the market capitulation is still not high enough in cryptocurrency to suppress many market manipulation. Therefore, expect certain degree of tolerance in the Fibonacci Retracement measurements.

Gartley Harmonic Pattern

4a.bullish-gartley.png

4b.bearish-gartley.png

The most popular harmonic pattern is Gartley. After the impulsive phase, there are no extreme price fluctuation in the correction phase. The Fibonacci Golden Ratios are as below:

  • XB: 0.618
  • AC: 0.382 - 0.886
  • BD: 1.272 - 1.618
  • XD: 0.786

Bat Harmonic Pattern

5a.bullish-bat.png

5b.bearish-bat.png

Bat harmonic pattern looks like a bat's wings which are long but narrow. The distance between the middle and the first and the last points are long while the distance between the middle and its neighboring points are short. The Fibonacci Golden Ratios are as below:

  • XB: 0.382 - 0.5
  • AC: 0.382 - 0.886
  • BD: 1.618 - 2.618
  • XD: 0.886

Butterfly Harmonic Pattern

6a.bullish-butterfly.png

6b.bearish-butterfly.png

Butterfly harmonic pattern looks like a butterfly's wings. While in Gartly, one of the wing is smaller than the other but in Butterfly the last point breaks the price line of the first point making both wings equal. The Fibonacci Golden Ratios are as below:

  • XB: 0.786
  • AC: 0.382 - 0.886
  • BD: 1.618 - 2.618
  • XD: 1.272 - 2.618

Crab Harmonic Pattern

7a.bullish-crab.png

7b.bearish-crab.png

I do not know why they call this the Crab Harmonic Pattern. Maybe because crabs walks sideways and their pinches which is represented by one of its side longer then the other? The Fibonacci Golden Ratios are as below:

  • XB: 0.382 - 0.618
  • AC: 0.382 - 0.886
  • BD: 2.24 - 3.618
  • XD: 1.618

Some Other Harmonic Patterns

New Cypher Harmonic Pattern

8a.bullish-new-cypher.png

8b.bearish-new-cypher.png

The new cypher harmonic pattern I see as the reverse mountains, reverse wings, or reverse sides of any harmonic patterns where usually the left side is higher than the right side, here the right side is higher.

More Lists

Source: http://chartreaderpro.com/harmonic-pattern-ratios/.

harmonic pattern list

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