Utilizing Harmonic Price Patterns to Make the Ultimate Trading Strategy
Author: George Davis
What is a harmonic price pattern?
Recognizing harmonic price patterns is the basic strategy traders develop in Technical Analysis. However, perfecting harmonic price patterns requires extensive practice and experience. Mastering harmonic price patterns allows traders to make informed decisions and adapt to a range of trading conditions.
What Is a Harmonic Price Pattern?
Developed by H.M. Gartley in 1932, the harmonic price patterns strategy helps identify retracement and extension along with the stock market’s high and low swings. The theory behind harmonic price patterns is based on price/time movements subjected to Fibonacci ratios. The general idea of these ratios is to identify the key turning points in the stock market that allow traders to understand the best time to enter and exit a market.
Examples of Harmonic Price Patterns
There are various harmonic price patterns for stock trading; however, the most used ones are the
Gartley Harmonic Price Patternand the Butterfly Bearish Price Pattern. Beginners refer to these basic price patterns while mastering Technical Analysis.
Gartley Harmonic Price Pattern
The Gartley pattern is a 5-point bullish pattern that resembles an “M” or a “W.” These patterns are based on 2 impulse swing legs and 2 retracement legs. All of these swings are inter-dependent on the Fibonacci ratio, and the eye of the pattern is “B.” However, all trades take place on “D” A.K.A. an action trigger. The Gartley patterns reflect trade entry, stop, and target levels from the “D” level – hence, it’s called the action point.
Example of Harmonic price pattern
Butterfly Harmonic Price Pattern
While the Gartley harmonic price pattern highlights the point best for buying, the bearish butterfly pattern allows traders to know the best time to sell their stock. The butterfly harmonic pattern is similar to the Gartley pattern, but in reverse. Here the “W” is shaped like a “B.” However, “B” is still considered the center. To utilize the butterfly patterns, traders adhere to its minimum requirements, i.e., AB=CD, where point A to B is the entry and C to D is the exit.
Example of Bearish Butterfly price pattern
Harmonic price patterns are inter-dependent with the Fibonacci ratio and facilitate traders in understanding the dynamic market trends. These patterns are a crucial part of Technical Analysis, and these patterns broaden into more complicated graphs that give a clearer picture of the stock market.
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