Elliott Wave Theory, Impulse Waves and Corrective Waves
Harmonic Price Patterns, ABCD and the Three-Drive, Gartely Pattern
How to Trade Harmonic Price Patterns
How to Trade Harmonic Price Patterns?
Now that you know everything about harmonic price patterns let’s see how you can trade using these patterns.
The main job is to spot the patterns to gain profit using the harmonic price pattern. Spotting the perfect pattern will help you to buy and sell at the right time.
There are three basic steps to spot the perfect harmonic price patterns and take action.
Step 1: Identify the potential harmonic price pattern.
Step 2: Measure the potential pattern.
Step 3: Sell or buy after the harmonic pattern is completed.
If you can properly follow these steps, you can increase your profitability.
Step 1: Identify the Potential Harmonic Price Pattern
First of all, try to locate any possible harmonic price pattern. Initially, you may not be able to locate a pattern. But overserving the price changes for a while will give you an idea if there are possible harmonic patterns.
If you locate any pattern, you may get confused about whether it is a bat, crab, ABDC, etc. Besides looking at the patterns, you will also need to label out that reversal point. This will give you more idea about the potentiality.
Step 2: Measure the Possible Harmonic Price Pattern
In this step, you will need the Fibonacci tool to measure the pattern. Also, take a pen and paper to list down the observation. This will help you get a rough idea before making a final decision. Check out the following example.
From the image, you can see that moving from B to C creates a .618 retracement of move AB while the C to D creates a 1.272 extension of move BC. And the AB’s length is almost equal to CD’s length.
So, we can say that this pattern creates a bullish ABCD pattern. And know from the previous chapter that the ABCD pattern is a strong buy signal. So, you place a buy order using this harmonic pattern.
Step 3: Sell or Buy After the Harmonic Pattern Is Completed
You have successfully identified the potential harmonic pattern type, and now you have to take appropriate action.
Check the pattern in the image above. Since you identified this as the ABCD pattern, you should place buying order at D, which is exactly 1.272 Fibonacci extension of move CB. And for the stop loss, make sure you put it a few pips below the entry price at D.
Although these whole steps may seem to be easy for you, it is not that easy. The challenging part is that harmonic price patterns are pitch-perfect. Hence, at times it becomes difficult to spot them.
You must need acute observation power to spot the possible pattern perfectly. Additionally, you also need a lot of patience and resist yourself from taking action from rough calculations before the pattern ends.
Harmonic trading is a systematic and analytical approach to trading, which demands a considerable amount of dedication, persistence, and a comprehensive understanding of the patterns to master it. The fundamental measurements of harmonic trading merely lay the foundation of this trading methodology. However, the movements that do not align with the accurate pattern measurements disrupt the pattern’s validity and can misguide the traders in their trading decisions.
Therefore, traders who wish to employ harmonic trading must possess a robust analytical ability and a keen eye for detail to accurately identify valid trading patterns. Besides, they must also exercise patience and regular practice to develop a deep understanding of harmonic trading, enabling them to execute successful trades consistently.
In conclusion, mastering harmonic trading requires a combination of skill, dedication, and knowledge. By doing so, traders can make informed trading decisions and maximize their returns.