How to Trade with Harmonic Price Patterns

There are many different ways of predicting future price movements in Forex. Traders can turn to technical analysis, use various technical indicators, or observe different patterns to speculate in which direction a price will move.
 
One of the most complex forms of observing patterns is called harmonic price patterns. This method is called harmonic because these patterns have an integral connection with Fibonacci sequence numbers - one of the most harmonic natural occurrences in nature.
 
The identifiable harmonic price patterns in Forex follow along the lines of Fibonacci ratios. The most important primary ratios are 0.681, 0.382, which then are used to come up with derivative ratios such as 1.681 or 3.14. According to this method, the subsequent price movements on the chart should repeat the Fibonacci ratios in order to be considered as harmonic price patterns.
 
There are different harmonic patterns known to traders. Some of the most popular among them are:
 

  • Gartley pattern
  • Bat pattern
  • Butterfly pattern

 
The Gartley pattern is the earliest harmonic price pattern, which then became a foundation for other harmonic patterns as well. We’ll explain all the important details about these patterns in this article.

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Explaining harmonic price patterns for beginners

When trading Forex, stocks, or other trading assets, many people tend to use practices that help them speculate the future prices of their assets. While it’s not guaranteed that every prediction will work out in the end, traders still use technical/fundamental analysis, technical indicators, or pattern analysis in their trades.
 
When it comes to the pattern analysis, there is a prediction method called harmonic price patterns that gets the most attention from traders. The core idea behind this method is that everything around us has some sort of pattern that repeats itself.
Forex trading harmonic patterns
As for harmonic patterns themselves, they’re called harmonic because they derive from the Fibonacci sequence - the famous mathematical formula that goes like this: 0, 1, 1, 2, 3, 5, 8, 13, 21… In short, every next number is a sum of the previous two numbers.
 
From those numbers, the harmonic pattern ratios can be derived. The most integral ratios are 0.681, 0.382, 0.236, etc. There are also those ratios that are derived from the integral ones, including 1.681, 2.236, 3.14, etc. Harmonic price patterns use exactly those ratios for predicting future price movements.
 
Harmonic price patterns usually consist of four consecutive price movements on the chart. In order to identify them as harmonic patterns, they have to conform with the ratios derived from the Fibonacci sequence. For this reason, traders can basically analyze harmonic price patterns using the Fibonacci Retracement indicator and some additional tools.
 
If and when the harmonic pattern is detected, then a trader can make a certain prediction about where the next price will go. Depending on which types of harmonic price patterns they use, the future price movement will go in different directions.
 
There are lots of different harmonic patterns in Forex and other markets. Among the most popular ones are:
 
  • Gartley pattern
  • Bat pattern
  • Butterfly pattern
 
Let’s take a look at each of these patterns more closely.


The Gartley pattern

The first harmonic pattern was introduced by H.M Gartley in his book, Profits in the Stock Market, that’s why it is called the Gartley pattern. Additionally, all the other harmonic patterns use this pattern as a foundation for their specific use-case.
 
So, here’s the brief explanation of the Gartley harmonic pattern ratios and how they work:
 
  1. The first price move on the chart can be anything as there are no specific requirements for it to be recognized as a harmonic pattern;
  2. The next move should be the opposite of the first one and be about 61.8% (0.618) of it;
  3. The third price move should also be the opposite of its previous move. This one has two possible ratios: either 38.2% or 88.6% of the second move;
  4. The fourth and final move should, again, be opposite of the third movement and it should either be 127.2% (if the third move is 38.2%) or 161.8% (if the third move is 88.6%);
  5. From the first to the last movements, the overall move should be 78.6% of the original price.
 
Now, if the above-mentioned “zigzag” patterns can be detected on the chart, traders can use other Fibonacci ratios to predict future price moves of their assets.
Harmonic price patterns for beginners


The Bat pattern

The Bat pattern, as we have already mentioned, derives from the Gartley pattern and takes a similar zigzag complexion. However, unlike its predecessor, the Bat pattern lines are a little bit more symmetric to one another, while the 88.6% Fibonacci retracement appears in several places. So, here’s how the pattern works:
 
  1. Just like in the Gartley pattern, the first move in the Bat pattern can be any random one and there are no particular prerequisites for it to be considered the harmonic pattern;
  2. The second move should be opposite to the first one with a difference of either 38.2% or 50% from the initial move;
  3. The third move is also supposed to be the opposite of the second move. As for the difference, it should either be 38.2% or 88.6% of the second move;
  4. The final move, also opposite to the previous one, should either be 161.8% (if the previous move is 38.2%) or 261.8% (if the previous move is 88.6%);
  5. The total price move from the first to the last move should be 88.6%.
 
The two harmonious patterns - Gartley and Bat - are similar in another aspect: both of them end in a point that doesn’t go beyond the first price move. For this reason, they are called internal patterns.
FX harmonic price patterns
 

The Butterfly pattern

The Butterfly pattern is similar to the previous patterns in some ways, yet in other ways, it differs from them. The similarity between the three patterns is that they all have four legs, all of them are the opposites of one another, and they come from the original Gartley Pattern.
 
However, unlike the previous patterns, the Butterfly pattern’s end price is beyond the initial leg. This means that the price has changed much more drastically than in the previous FX harmonic price patterns. Here’s how this pattern works:
 
  1. The first movement, as always, is random and can be anything;
  2. The second move should be the opposite of the first one and the difference must be about 78.6%;
  3. The third move is also opposite to the second move. It can either be 38.2% or 88.6% of the second move;
  4. The final move, being the opposite of the third one, should be 161.8% (if the third move is 38.2%) or 261.8% (if the third move is 88.6%);
  5. In all of these possible scenarios, the total price change from the first to the last moves will be more than 100% (extending the internal leg) - either 127% or 161.8% of the initial price.
 
Now, there are other harmonic patterns Forex traders can use, including the Crab pattern, Cypher pattern, and many more, however, for the sake of this guide, the three patterns are also enough to explain the mechanism behind harmonic price patterns.
Harmonic price patterns in Forex

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Trade FX with harmonic price patterns - Key takeaways

Traders in Forex, as well as other markets, analyze various patterns in price movements in order to predict future movements and make more successful trading decisions. One of the most popular and complex methods of pattern analysis uses harmonic price patterns.
 
Harmonic patterns use various ratios derived from the Fibonacci sequence, that is why they were named harmonic in the first place. According to this method, the patterns that conform to those Fibonacci ratios can move in a predictable direction in the future.
 
As to how to use harmonic price patterns in Forex, it pretty much depends on the type of pattern that a trader chooses. While there are many different harmonic patterns, we reviewed the three most popular ones: Gartley, Bat, and Butterfly.
 
Some of the biggest similarities between the three patterns are: all of them use four price movements to detect the harmonic pattern, all of those legs are the opposites of one another, and all of the patterns are derived from the original Gartley pattern. The main difference between them is that Gartley and Bat are internal patterns, while the Butterfly pattern is external, meaning the total price change is bigger here.
 

FAQ on harmonic price patterns in Forex

1.What is the use of harmonic price patterns in FX?

Harmonic price patterns, just like technical indicators or analysis, are used to make predictions about the future price movements. And while this is nothing more than speculation, this method can still be used under some circumstances.
 
Basically, when a trader wants to use the analysis of harmonic price patterns, they first have to detect those patterns. Depending on the type of harmonic pattern they’re looking for, the specific ratios will be different, but one thing will be similar: every move in the pattern should conform with the Fibonacci ratios.
 
After the pattern is identified, traders can then base their predictions on the previous movements and say, whether the new price will be higher or lower and how big that difference will be.


2.What are the most popular Forex trading harmonic patterns?

There are lots of different harmonic patterns in Forex, stocks, and other markets. There’s Gartley pattern, Bat, Butterfly, Crab, Cypher, and many other patterns that have many differences and similarities. The most popular patterns are Gartley, Bat, and Butterfly.
 
The Gartley pattern is the first recorded harmonic pattern which is then used to create other patterns as well. For this reason, Gartley is considered the most influential harmonic pattern in the industry.
 
In terms of similarities between the three patterns, the most prominent one is that all of them use four moves to identify the actual trend. Not only that, but all of the moves are also the opposite of one another, turning the pattern into a zigzag.
 
As for differences, Gartley and Bat are called internal patterns because the final price is contained within the first move, therefore, the price difference isn’t that big. In the Butterfly pattern, the final price goes beyond the initial move, making the price difference considerably larger. That’s why it is called the external pattern.

3.How is trading with harmonic price patterns related to the Fibonacci sequence?

In order to first determine the harmonic pattern and then to make a prediction about the future price movement, traders use the famous sequence of Fibonacci. Basically, the first two numbers are 0 and 1 in this sequence, whereas every next number is the sum of the previous two numbers. Therefore, the Fibonacci sequence goes like this: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, etc.
 
The reason why this sequence is incorporated into harmonic patterns is that it offers various ratios that are then applied to the identification process. The most important ratios are 0.681, 0.382, etc. Depending on the type of harmonic sequence a trader chooses, the individual price moves will be higher/lower than the previous price by these ratios.

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