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Harmonic Price Patterns, ABCD and the Three-Drive, Gartely Pattern

Harmonic Price Patterns, ABCD and the Three-Drive, Gartely Pattern

Having dealt with basic chart patterns, you will also need to enhance your forex trading skills with the addition of some advanced tools like the harmonic price patterns. Although the harmonic price patterns are hard to grasp once you master them, they can come in handy and help in making good profits.

Harmonic price patterns help in spotting retracement

Harmonic price patterns are very vital in assisting individuals to spot the potential retracement of previous trends. There are important tools that have already been covered that can be applied in this case, and they include extensions and Fibonacci retracement.

If you combine these fantastic tools in spotting harmonic price patterns, you will be better placed in distinguishing the potential areas that show the extension of the overall trend.

Harmonic price patterns

In understanding the concepts, there are various harmonic price patterns you should understand first. The patterns include ABCD Pattern, Three-Drive Pattern, Gartley Pattern, Crab Pattern, Butterfly Pattern, and the Bat Pattern.

The ABCD and the three-drive patterns are the fundamental patterns, and this should be where you begin to develop a foundation before starting on Gartley and the rest of the patterns. After developing an understanding of the patterns, you will then get to learn of the tools that you will require for you to trade these patterns in the market successfully.

The secret with the harmonic price patterns is to be patient and hold on until the whole pattern completes before deciding to take any long or short trades.

The ABCD and the Three-Drive

The ABCD And Three-Drive Patterns

The fundamental harmonic patterns include the ABCD and three-drive patterns, which are the simplest to understand.

The ABCD

The ABCD and the Three-DriveThe ABCD pattern is as simple to understand as learning ABC. However, in this case, we add letter D at the end to make the ABCD chart pattern that so simple and easy. The pattern is easy to understand, but it will require you to be very keen for you to notice the pattern. Equally, you have to have more understanding of the Fibonacci chart tool to pull it off.

In regard to the bearish and bullish forms of the chart pattern, the AB and CD lines are normally referred to as legs while the BC is known as the retracement or correction. When you apply the Fibonacci retracement tool on the AB leg, the BC retracement is likely to reach the 0.618 level. On the other hand, the CD line is expected to be the 1.272 Fibonacci extensions of line BC.

It is that simple but always be patient and wait for the completion of the pattern until it reaches point D before deciding on any long or short positions.

However, if you want to exercise more caution, then some rules can apply in the validation of the ABCD Pattern. The first one is that line AB, and line CD should be of the same length. The second rule is that the time taken from the price to move from A to B and from C to D should equally be the same.

Three-Drive Pattern

The three-drive pattern is less the same as the ABCD pattern, but the difference is that it has three legs known as drives and two retracements or corrections. The three-drive pattern is very easy, and it is a product of the Elliot Wave Pattern.

For this pattern, you will have to exercise patience, use the Fibonacci tool, and make use of your hawk eyes.

Considering the above charts, point A’s retracement should be 61.8% of drive 1 while point B is supposed to drive 2’s 0.618 retracements. Equally, drive 2 is supposed to be the 1.272 extensions of correction A while drive 3 is the 1.272 extension of correction B.

Once the three-drive pattern completes the cycle, you can make your decision on your short or long trade. Basically, when the price gets to point B, you should have set you long or short orders at the 1.272 extensions to avoid missing out.

The following two rules are very important to ensure you check them. First, the price takes the same time to complete drive 2 and drive 3. Secondly, the completion of retracement A and B should also take the same time.

Trading The Gartley Pattern

Trading the Gartley Pattern

Trading The Gartley PatternThe pattern is often associated with Harold McKinely Gartley who in the mid-1930 operated a stock market consultancy service that had a massive following. The service pioneered the use of statistical tools and application of scientific methods in analyzing stock market trends.

Through the use of scientific methods and statistical tools, Gartley managed to solve the challenge that traders faced of what and when was it appropriate to buy. The idea gained popularity soon after and since it has been applied in various markets. And many other patterns have been developed based on Gartley’s ideas.

“222” Gartley pattern

The pattern is known as the Gartley “222” pattern, which reflects the page number where it is discussed in Gartley’s book “Profits in the Stock Market.” The Gartley patterns also include the fundamental ABCD pattern already discussed, but they are however preceded by a considerable low or high.

The patterns usually form when there is a retracement of the entire trend, and they tend to appear like an’M,’ or for bearish patterns, they look like ‘W.’ Gartleys are essential in helping traders to establish excellent entry points to join in on the entire trend.

A Gartley pattern is formed once the price action shows a recent upward trend or downward trend but has begun showing correction signs. Gartley’s is a fantastic setup when forming because its reversal points are usually the Fibonacci extension and Fibonacci retracement level which is a strong indication of the possibility of reversal of the pair.

The pattern is quite tricky to spot, and in the event, you do it can be confusing, especially when you refer to the Fibonacci tools. The secret to avoiding the confusions is to be systematic in taking your steps.

Typically the Gartley pattern has a bearish and bullish ABCD pattern, but it is normally led by point X which is beyond point D.

Characteristics of a Perfect Gaately Pattern

The AB move is supposed to be the 0.618 retracements of the XA move. Equally, the BC move is expected to be either 0.886 or 0.382 retracements of the AB move. However, given that the retracement of the BC move is 0.382 of the AB move then it is expected that CD has to be 1.272 of the BC move. Equally, if the BC move is 0.886 of the AB move the CD is supposed to be a 1.618 extension of the BC move. Finally, the CD move should be 0.786 retracements of the XA move.

The Animals

There are variations of the Gartley Pattern in what is referred to as Gartley Mutants that were developed by other people. Most of these variations are named after animals, which is the reason they are often referred to as the animals.

The Crab

Scott Carney, a strong advocate of harmonic price patterns, founded the “Crab” in 2000. According to Scott, among all harmonic price patterns, this is the most perfect since the Potential Reversal Zone is extreme from the XA move.

The “Crab” has a high reward-to-risk percentage because there is a possibility of putting a close stop loss.

Characteristics of the Crab pattern

The AB move should be the 0.618 or 0.382 retracements of the XA move while the BC move should either be 0.886 or 0.382 retracements of the AB move. In the event the retracement of the BC move is 0.382 of the AB move then the CD move will likely be 2.24 of the BC move. Therefore if the BC move is 0.866 of the AB move, then the CD should extend 3.618 of the BC move. CD has to be a 1.618 extension of the XA move.

The Bat

In 2001 Scott Carnet discovered a harmonic price pattern that he referred to as the “Bat.” The 0.886 retracement of the XA characterizes the pattern moves as the Potential Reverse Zone.

Aspects of the Bat Pattern

The AB move has to be 0.500 or 0.382 retracement of move XA and the BC move should either be 0.886 or 0.382 retracements of the AB move. If the BC move retracement is 0.382 of the AB move, then CD is supposed to extend 1.618 of the BC move. Similarly, if the BC move is 0.866 of the AB move, then the extension of the CD move should be 2.618 of BC. Therefore the CD retracement should be 0.886 of XA move.

The Butterfly Pattern

If you spot the butterfly, then you will have hit a jackpot in terms of pips. It was coined by Bryce Gilmore, and a perfect pattern is characterized by the 0.786 retracements of AB move relative to the XA move.

Features of the Butterfly pattern

The retracement of the AB move should be 0.786 of the XA move while that of BC should be either 0.886 or 0.382 of the AB move. If the BC move retracement is 0.382 of the AB move, then the CD move should extend by 1.618 of the BC. However, in the event the BC move retracement is 0.866 of the AB move then the CD move is supposed to be a 2.618 extension of the BC move. CD should always extend by 1.618 or 1.27 of the XA move.

3 Steps to Trading Harmonic Price Patterns

How to Trade Harmonic Price Patterns?

Harmonic Price Patterns helps you to identify those “perfect” patterns and taking a trade based on those patterns completion. The trades can on either be on buying or selling side.

The process

You can spot Harmonic Price Patterns in three simple steps:

  1. Identify a probable Harmonic Price Pattern
  2. Measure this identified pattern.
  3. Take a trade on the completion of this identified Harmonic Price Pattern.

Identify a potential Harmonic Price Pattern

It is first necessary to read between the charts and identify a potential Harmonic Price Pattern. At first look, you may be confused as to what type of pattern that is; whether it is a three-drive, a Moose, or some other pattern. Don’t forget to label the reversal points in any of these patterns.

Measure the identified pattern

Once you identify the Harmonic Price Pattern, then move on to the next step, measure this pattern. This you can do by using the Fibonacci tool, a pencil, and a piece of paper. Note down the observations, including the retracement and extension levels. This will help you identify the trend. In this chart, the pattern suggests a bullish ABCD pattern.

Take a trade on the completion of this identified Harmonic Price Pattern.

You can decide on which way to trade once you measure the potential Harmonic Price Pattern. In this case, you can opt for buy trade at point D, and then set a stop loss a couple of points below the entry price.

Conclusions: Harmonic Price Patterns

What You Know About Harmonic Price Patterns?

Harmonic price patterns can be a tad more complicated when compared to the classic chart patterns. However, they can be of a significant addition to your charting skills, especially to identify apt trade opportunities. You can use harmonic price patterns to distinguish prospective areas for an extension of the overall trend. These patterns can be divided into six types:

  • The ABCD Pattern
  • The Three-Drive Pattern
  • The Gartley Pattern
  • The Crab Pattern
  • The Bat Pattern
  • The Butterfly Pattern

There is a three-way process to use Harmonic Price Patterns. Even before you start using this, it is essential to understand the various steps. These three steps are listed as under:

  1. Try to identify a prospective harmonic price pattern. You may not be sure of which pattern it is when you see it for the first time. At first, it may appear as the Crab Pattern, but on second look it may seem as the ABCD pattern. Try to identify the pattern and then list the reversal points on it.
  2. Next step in this process is to measure the harmonic price pattern. Keep a pen, a piece of paper, and Fibonacci tool handy. Jot down the extension and retracement points, which will then help you know your upcoming trade.
  3. Once you have listed the extension and retracement points on the identified pattern, then decide your trade. The pattern may indicate whether you should take a buy trade or sell trade.

It is not easy to identify harmonic price patterns. You should understand the steps well. Moreover, you should have sharp analytical skills to spot possible harmonic price patterns.

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