# A Guide To Harmonic Patterns In Forex Trading

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Harmonic patterns can be used to spot new trading opportunities and price trends – but only if you know what you’re looking for. Read on to learn about higher harmonic patterns, and how to use them properly.

## A Guide To Harmonic Patterns In Forex Trading

Harmonic patterns are chart patterns that form part of a trading strategy – and they can help traders spot price trends by predicting future market movements. They create geometric price patterns by using Fibonacci numbers to identify potential price changes or trend reversals. Traders can identify these patterns and use them to inform subsequent trading decisions.

There are several chart patterns to choose from, each of which can be used to see different types of trends. However, it is important to note that before following any pattern, you must be confident in your ability to perform your own technical analysis, so that you can always make the best – and the fastest – trading decisions.

It can be said that the easiest pattern of all, the ABCD pattern (or AB=CD) consists of three movements and four points. First, there is impulsive movement (AB), then corrective movement (BC), then another impulsive movement (DC) which goes in the same direction as AB.

Using the Fibonacci retracement tool on leg AB, leg BC should reach exactly 0.618. Line CD will be the same length as line AB, and the time required for the price to return from A to B must be equal to the time required to go from C to D.

Traders can choose to either place their Entry orders near point C, which is defined as the Potential Reversal Zone (PRZ); or they can wait until the entire pattern is completed before taking a long or short position from point D.

#### The 5 0 Harmonic Pattern

The BAT pattern gets its name from the bat-shaped end product. Identified by Scott Carney in 2001, the BAT pattern consists of the precise elements that identify the PRZ.

It has one leg more than the ABCD pattern, and one additional point, which we will call X. The first leg (XA) will lead to the BC retracement movement. If the retracement reaches the B stop at 50% of the initial XA move, then you may be looking at a BAT pattern.

CD extension must be at least 1.618 of keg SM and can reach hh as 2.618. The CD extension must not be less than BC’s, otherwise fure invalidated. The final point (D) creates a PRZ, which means traders can open their positions to trade either a bullish price reversal, or a bearish price inversion.

This is similar to the BAT pattern in which the XA leg leads to a retracement BC, except that the retracement point B must be exactly 0.618 XA. The stop-loss point is often positioned at point X, while the take profit is often set at point C.

#### Harmonic Patterns: Butterfly Pattern Trading

The butterfly pattern was discovered by Bryce Gilmore who used different combinations of Fibonacci ratios to identify potential retracements. It is a reversal pattern consisting of four legs, marked X-A, A-B, B-C and C-D.

The most important ratio to define is the 0.786 retracement of the XA leg. This helps to plot point B, which will help traders to identify the PRZ.

Another discovery of Scott Carney, which follows a pattern X-A, A-B, B-C and C-D, which allows traders to enter the market at extreme highs or lows. The most important feature of the crab pattern is the 1,618 extension of the XA movement that defines the PRZ.

In the bullish version of the crab, the first leg forms when the price rises sharply from point X to point A. leg AB retraces between 38.2% and 61.8% of XA. This is then followed by the extreme projection of BC (2.618 – 3.14 – 3.618), which determines the valid area for the completion of the pattern and the potential reversal of the current trend.

## What Is Butterfly Pattern And How To Use It In Trading

A bearish crab will trace a dip from point X to point A, followed by a modest price rise, a slht fall, and a sharp rise to point D.

This is a slhtly different version of the crab pattern outlined above. The only difference is that the retreat point B, which should be 0.886 of the XA movement without exceeding the X point.

Also discovered by Scott Carney, the shark pattern has some similarities with the crab pattern. It is a five-legged reversal pattern, with points labeled as O, X, A, B and X.

All shark-pattern trades are taken based on point C, while point D is used as a predetermined profit target.

### Harmonic Patterns: Learn How To Identify And Trade Them

Forex traders like harmonic patterns, because they are well suited to the real-time dynamics of the forex market. When they are used correctly, they can alert traders when underlying conditions are likely to cause a price drop, based on historical data.

How you identify and draw harmonic patterns depends on the type of market movement (bearish vs bullish). So, although there are many different harmonic patterns, they can be divided into two categories: bearish patterns, and bullish patterns.

Bullish traders believe that their market is about to experience an upward price movement, while bearish traders operate on the belief that the market is on a downward trajectory. When it comes to understanding bearish vs bullish harmonic patterns, the same rules apply.

If a series of harmonic patterns indicate that the market is on an upswing, bullish traders should use this insht to take a long position in their chosen market, in order to profit from any upturn.

## The Ultimate Beginner’s Guide To Chart Patterns

If a trader notices a bearish harmonic pattern, they may want to start shorting their market, by trading stocks or commodities on the assumption that the price will go down.

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#### How To Trade The Cypher Harmonic Pattern

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International Limited is part of the Group and its ultimate holding company is Group Holdings Plc. International Limited receives services from other members of the Group including Markets Limited. A 5-0 harmonic pattern is a 5-wave pattern that