Harmonic Patterns Trading Strategy Explained
These formations are called harmonious because they all obey the same laws and relations between the length of the main price movement and the effective movement. To date, 7 harmonic patterns have already been discovered, some of them quite recently.
These models were discovered and described at the time by experts: Kearney, Pasavento and Hartley. All harmonious patterns are calculated using Fibonacci numbers and proportions, both for the main ones and for their derivatives, which increases their accuracy.
Harmonic Patterns Trading Strategy Explained https://nsbroker.com/investment-strategies/harmonic-pattern-trading-strategy
The main patterns are: 5-0, bat, butterfly, three movements (three Indians), crab, Hartley butterfly and AB=CD. All these models are found at all time intervals, but they work best on D1.
These patterns allow you to predict the future price movement quite accurately. Harmonic patterns can be found not only in Forex, but also in other world markets. In this course, we will consider examples of the manifestation of patterns that occur on the market every day. Each pattern will be considered separately.
It is best to trade those models for which the signal is directed along the trend. This will provide an even greater probability of success when working on Forex. The key to success when working with harmonious patterns is the knowledge of retracements* harmonic patterns. All wavelength ratios are equal to the Fibonacci ratios: 0.382, 0.618, 0.5, 0.786 0.886, 1, 1.27, 1.618, 2, 2.618, some of them are derived relations. Some of them are already available in the standard set of the "Fibonacci lines" tool, but some need to be discussed separately. In any case, all these values can be entered into the indicator.
0.886 is the 4th degree root of 0.618. The retracement was introduced by Kane to confirm the efficiency of the" Crab".
0.786 is the square root of 0.618. It was created to work with harmonic patterns, for example,"Bats".
On the forums, you can often find a mention of these 7 patterns, but with the addition of a bunch of unnecessary indicators for market analysis. There is no need to complicate trading, because everything is simple and brilliant, and any complication or filtering reduces the number of transactions and the final profit from them. The only thing that needs to be filtered is the trend, if it is strong, and even then, not always. The markup of several currency pairs may be relevant for more than a week. All you need to earn money is to place limit orders and wait for the price to approach the entry levels.