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Harmonic Pattern Trading Strategy -

Easy Step By Step Guide
by TradingStrategyGuides | Last updated May 8, 2019 | Published on Apr 14,
2018 | All Strategies, Price Action Strategies | 9 Comments

This Amazing Harmonic Pattern Trading Strategy will give you a whole new
understanding of the price action. Our team at Trading Strategy Guides know the
geometric patterns that can be found in nature. The same anomalies can be found in
the nancial markets, such as in harmonic patterns. This ability to repeat and create
these intricate patterns is what makes the Forex harmonic patterns so incredible. We
also have training for the fractal trading strategy.

Harmonic patterns are complex patterns in the Forex market. If you want to start
with a simpler price action pattern, we recommend the Head and Shoulders Price
Pattern Strategy.

We can distinguish six basic Forex harmonic patterns:

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8/21/2019 Harmonic Pattern Trading Strategy - Best Way to Use the Harmonic Patterns Indicator

Gartley
Ends: Pattern - developed by H.M. Gartley, this pattern is the most frequently
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the harmonic trading community. Using Fibonacci ratios,
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the Gartley
This
pattern seeks to identify instances of breakouts, resistance, and support. This
pattern is characterized as an uptrend, followed by a small reversal, followed by a
smaller uptrend, and completed by a larger reversal (forming an asymmetric “M”
or “W” shape).
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Butter y Pattern - there are two di erent types of butter y patterns; bearish
butter ies and bullish butter ies. Like the Gartley pattern, these patterns are
designed to reveal when a trend reversal is stronger than the original trend. Using
the triangles created within the butter y, traders can determine whether holding a
short or a long position is the most pro table.
Crab Pattern - the crab pattern is ideal for traders trying to identify precise price
movements. It enables traders to maximize returns on securities with low volatility.
The crab pattern is similar to the butter y pattern but is more condensed. This
makes it possible to capture smaller movements.
Bat Pattern - when compared to the other patterns, the bat pattern is still a
trapezoid, but more symmetrical. For both the bearish and the bullish patterns,
the right side and the left side will be nearly the same heights.
Shark Pattern - the shark pattern is one of the newer harmonic trading patterns
and has been in use since 2011. The pattern uses a similar ve-leg reversal
sequence. The steep outside lines and shallow dip in the middle create a chart that
resembles a dorsal n. This is how the shark pattern gets its name.
Cypher Pattern - the cypher pattern is an advanced trading pattern that combines
Fibonacci trading with other indicators (such as RSI). The cypher uses tighter
Fibonacci ratios (usually less than 1), which creates a “steeper” visual appearance.

Each of these patterns will help you e ectively issue stop losses and stop limits. In
order to get a more comprehensive view of the market, it is useful to monitor
multiple harmonic trading patterns at once.

There are many bene ts of harmonic trading. For example, if you become an expert
in one of the Forex harmonic patterns, you’ll know how to trade it on certain pairs.
You’ll be able to know when the best time to trade is and when the market is going to
react in a certain way.

You’ll become an expert in Forex harmonic patterns. A useful tool for trading this
strategy is a harmonic pattern scanner or a dashboard that shows all the patterns on
di erent instruments. However, we recommend that you learn the patterns well
before using a scanner or dashboard.

Our favorite time frame for the Amazing Harmonic Pattern Trading Strategy is the
1h, 4h or the Daily chart. For simplicity’s sake, we’re going to refer to the Amazing
Harmonic Pattern Trading Strategy as the AHPT trading strategy. We don’t want to go

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8/21/2019 Harmonic Pattern Trading Strategy - Best Way to Use the Harmonic Patterns Indicator

to lower
Ends:time frames because, after extensive backtesting, we discovered the
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If you want quick pro ts, check out our favorite day trading strategy, the Best
Stochastic Trading Strategy - Easy 6 Step Strategy. It might be more suitable for
your own needs. This strategy performs the same and is suitable for trading other
asset classes like stocks, futures, options, etc.
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Throughout this article, you’ll learn the e ectiveness of this pattern the strengths
and the weakness. You'll also learn how to e ciently trade the Forex harmonic
patterns. This ability to consistently repeat makes the Forex harmonic patterns
attractive for our team at Trading Strategy Guides. We also have training on how to
trade with the Gartley pattern.

Before we get started, let’s look at what indicators we need to successfully

trade the Harmonic Pattern Trading Strategy:

If you aren’t that great on geometry most standard Forex trading platform comes
with a harmonic pattern indicator. This can help you spot and measure the Forex
harmonic pattern. The Forex harmonic patterns use the Fibonacci numbers to de ne
accurate trading points.

TradingView Platform: Harmonic Pattern Indicator

The harmonic pattern indicator allows you to call market turning points with a high
level of accuracy. Check out the Price Action Pin Bar Trading Strategy if you don’t
have prior knowledge of how a reversal trading strategy looks.

Let’s now jump into the rules of the AHPT trading strategy.

Note*: Moving forward, we’ll be focusing on the Butter y harmonic

pattern. This is one of the most common Forex harmonic patterns.

What is the Butter y harmonic

pattern?
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8/21/2019 Harmonic Pattern Trading Strategy - Best Way to Use the Harmonic Patterns Indicator

In technical
Ends: analysis, the Butter y harmonic pattern is a reversal pattern composed
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four legs. A leg is a swing wave movement that connects and is composed of a
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swing high and a swing low. Here is how to identify the right swing to boost your
pro t.

Butter y harmonic pattern rules summary:

1. AB= 0.786 or 78.6% retracement of the XA swing leg;

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2. BC= minimum 38.2% - maximum 88.6% of AB swing leg;             

3. CD= minimum 1.618 – maximum 2.618 of AB swing leg;
4. CD=minimum 1.272% - maximum 1.618% of XA swing leg;

De ning the Butter y harmonic pattern.

The Butter y harmonic pattern depends upon the B point. It de nes the structure
and sets up the other measurements within the pattern to de ne the trade
opportunities. To the Butter y pattern the B point, it must possess a precise 78.6%
retracement of the XA swing. Other rules that rede ne the structure further includes
the BC projection that must be at least 1.618 measurements.

Also, the Butter y pattern must include an equivalent AB=CD pattern. It’s a minimum
requirement. However, the alternate 1.27AB=CD is more common for this structure.

The 1.27XA projection is the most critical number in the potential reversal zones.
And, nally, the C point must be within the range of 0.382-0.886 retracement.

You can start drawing the butter y pattern as soon as you have the rst two legs of
the pattern. Once you have the points X, A and B, you can begin monitoring the price
action. You can look for con rmation that the wave C conforms to the Butter y
pattern rules.

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The Amazing Harmonic Pattern

Trading Strategy Rules
Now it’s the time to reveal the Amazing Harmonic Pattern Trading Strategy rules.
We’ll start with the most exciting part. This is always the entry point and continue
down with the rules for the stop loss and take pro t orders.

There is one important thing that we need to learn before to actually de ne the
Harmonic Pattern Trading Strategy rules. This is to give you indications on how to
apply the Harmonic pattern indicator.

Step #1 How to apply the Harmonic Pattern Indicator

I would walk you through this process step by step. All you need to do is to follow
this simple guide. See gure below for a better understanding of the process:

First, click on the harmonic pattern indicator which can be located on the right-
hand side toolbar of the TradingView platform. In the MT4 terminal, you can locate
the harmonic pattern indicator in the Indicators library.
Identify on the chart the starting point X, which can be any swing high or low point
on the chart.
Once you’ve located your rst swing high/low point you simply have to follow the
market swing wave movements.
You need to have 4 points or 4 swing high/low points that bind together and form
the Forex harmonic patterns. Every swing leg must be validated and abide by the
harmonic pattern strategy rules as presented above.

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8/21/2019 Harmonic Pattern Trading Strategy - Best Way to Use the Harmonic Patterns Indicator

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Now, we’re going to give the entry rules for the bullish Butter y harmonic pattern.

See below…

Bullish Butter y Harmonic Pattern – Buy Entry

Ideally, as a trader, you would like to enter at the completion of point D. As we

established earlier, the point D of the Butter y Forex harmonic pattern can develop
anywhere between 1.27 – 1.618 Fibonacci extension of A leg. Since the market is not
a perfect place, we’ll initiate a buy order once the markets hit the 1.27 Fibonacci
extension.

In the above example, we entered at 1.272 Fibonacci extension, but we can already
see point D extend to 1.573 Fibonacci extension. This is still inside the 1.272 – 1.618
range that validates the bullish Butter y harmonic pattern.

That’s still a great entry level.

Where to place your protective stop loss is the next logical question.

Bullish Butter y Harmonic Pattern – Stop Loss

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8/21/2019
y p
Harmonic Pattern Trading Strategy - Best Way to Use the Harmonic Patterns Indicator

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the Bullish
Strategy
y Harmonic Pattern, you normally want to This
Reveal place your
protective stop loss below the 1.618 Fibonacci extension of the XA leg. That’s the
logical place to hide your stop loss. This is because any break below will
automatically invalidate the Butter y harmonic pattern.
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So far, we de ned the proper entry point and the stop loss location for the Harmonic
Pattern Trading Strategy. Now, it’s time to switch our focus and de ne where to take
the pro ts.

Bullish Butter y Harmonic Pattern – Take Pro t

Adding multiple take pro ts with the AHPT trading strategy will enhance further your
trading experience. and will in uence the expected pro tability because this will
almost guarantee you’ll bank in a pro t. The Forex harmonic patterns, while they are
a reliable pattern, you want to be very aggressive with your pro t target.

As the saying goes: “No one has gone broke by taking a pro t”

So, where do you take your rst partial pro t?

See gure below:

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8/21/2019 Harmonic Pattern Trading Strategy - Best Way to Use the Harmonic Patterns Indicator

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The Amazing Harmonic Pattern Trading Strategy has a more conservative rst partial
pro t target established at Point B. Normally this is the place where you will expect
to nd some resistance on the way back up because it’s an important swing point.

We want to close the second part of our trade once we hit the 0.618 Fibonacci
retracement of the CD leg. You can even aim for a retest of point A. Although that
can be your next target once you become more experienced with the harmonic
pattern indicator.

Have a look at the chart below:

Note** The above was an example of a BUY trade using the Bullish Butter y
Forex Harmonic Pattern. Use the same rules for the Bearish Butter y Forex
Harmonic Pattern for a SELL trade. In the gure below you can see an actual
SELL trade example. You can do this using the Bearish Butter y Forex
Harmonic Pattern.

Take a look:

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Don’t be discouraged if this chart may look confusing at rst look. Study the above
rules and you’ll nd this trade example follows the strategy rules perfectly.

Conclusion:
For all Forex harmonic patterns, and trading in general, precision is the key. This is
because we eliminate mistakes when we’re as precise as possible. The Harmonic
Pattern Trading Strategy gives us the highest probabilities for success. The great
thing about the Forex harmonic patterns is they recognize areas where supply and
demand come into focus. If you’re a fan of supply and demand trading, read Supply
and Demand Trading - Learn about Market Movement. It is a great preface to
supply and demand trading.

Thank you for Reading!

Please Leave a comment below if you have any questions about this strategy!

Also, please give this strategy a 5 star if you enjoyed it!

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How to Trade Harmonic Patterns- Easy Step By Step Guide

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