Patterns are a very important part of the foreign exchange business because they help us visualize market conditions. In other words, they bring the facts we know about the market closer to us. If we look at them in order to predict future movements, we have to know exactly what to look at and how to interpret it. In this article, we’ll discuss some complex patterns called forex harmonic patterns. Stay with our experts’ analysis and learn something new!
Forex Harmonic Patterns | Basics
At the very beginning of our Forex Harmonic Patterns article, we should say that these patterns help us notice retracements of recent trends. They are geometrical patterns that use Fibonacci methods in order to mark turning points. That’s why these patterns are very precise: they show movements of a certain magnitude and provide very accurate reversal points. Since they use the Fibonacci principle, you have to keep an eye on the Fibonacci levels: you may see a pattern that looks like a harmonic pattern, but if there are no Fibonacci levels involved, there’s no harmonic pattern either. It can be hard to learn how to observe forex harmonic patterns in the correct way, but that’s also a matter of practice, skill and experience, so don’t give up.
At this point of our Forex Harmonic Patterns analysis we would like to underline that patterns can be found within other patterns. Also, non-harmonic patterns can be seen within the context of harmonic patterns, and the fractal nature of the markets allows the harmonic patterns theory to be applied to a time frame of any size.
Forex Harmonic Patterns | Important Patterns
Let’s now take a look at the most common types of forex harmonic patterns that can appear on your chart. Obviously, since we’re looking at the chart, we’re talking about Technical Analysis here. The simplest pattern is called ‘ABCD’ and it can be bullish or bearish. The lines AB and CD are usually called legs, and BC represents correction or retracement. The length of the AB line should be the same as that of the CD line. Another important pattern is the so called Three-Drive, which has three legs and two corrections and can also be both bearish and bullish. The last one is called the Gartley Pattern, and it’s basically an ABCD pattern that is preceded by a significant high. This is a very common pattern, and it has many ‘animal’ variations – types of the Gartley pattern named after animals (the crab, the bat and so on).
Forex Harmonic Patterns | Conclusion
Forex harmonic patterns can see a bit complicated, but there’s a good reason for that: they are very precise, meaning they can help you a lot in your trading. In order to learn how to handle them, you should first learn how to handle Fibonacci: once you’re done with this, everything’s going to be much easier!