"When the beautiful chart is organized, signs of reversal" Monitoring the chart with harmonic patterns
About Harmonic Patterns
It is one of the technical analysis methods used in FX and stock trading, which combines the “geometric chart patterns” and “Fibonacci ratios” to predict market reversals (tops and bottoms) with high precision.
In one line, it is based on the idea that“when the chart forms a beautiful shape (specific ratios), the market tends to reverse.”.
1. Basic structure of Harmonic Patterns
Harmonic patterns are basically composed of a wave pattern formed by connecting five points (X, A, B, C, D) that resembles an “M” or a “W.”
Bullish pattern:A shape like a “W” (buy at point D).
Bearish pattern:A shape like an “M” (sell at point D).
Most importantly, the lengths of each leg must align with Fibonacci ratios (0.618, 0.786, 1.272, 1.618, etc.). It’s not just a shape; there must be mathematical backing.
2. Four representative patterns
There are many variations, but learning the basic “Big 4” patterns is a quick shortcut. Their differences lie inthe retracement at point Bandthe attainment at point D.
① Gartley
The most basic and famous pattern.
Feature:For XA, point B retraces by 61.8%.
Point D:Reverses at 78.6% retracement/support from XA.
Movement:Since it reverses without exceeding point X, it is a relatively safe pullback/reattachment in an uptrend or downtrend.
② Butterfly
A pattern that moves significantly beyond point X.
Feature:Point B retraces deeply to 78.6%.
Point D:Extends beyond point X to 127.2% (1.272) of XA or to 161.8% and then reverses.
Movement:Aims to catch the reversal after a trend climax (overextended move).
③ Bat
Similar to Gartley but with a slightly different shape.
Feature:Point B retraces shallowly (38.2%–50%).
Point D:Reverses deeper than Gartley, to 88.6% of XA.
Movement:Considered one of the patterns with very high probability.
④ Crab
The pattern with the strongest price move.
Feature:Like Butterfly, it goes beyond X, but the extension is much longer.
Point D:Extends to 161.8% of XA, a very far extension.
Movement:Often appears at the final stage of a sharp trend; if it plays out, it offers large profit but carries high risk.
3. Trading steps (using PRZ)
In harmonic patterns,Point Dis referred to as the PRZ (Potential Reversal Zone).
Pattern discovery:Identify waves on the chart where X-A-B-C are forming.
Predicting D (PRZ):Use Fibonacci to identify D (PRZ) and set limit orders or alerts.
Entry:When price reaches D (PRZ) and price action (candlestick reversal signals, etc.) confirms, enter.
Stop Loss:Clearly exit beyond the PRZ (slightly outside X).
Take Profit:Use the 38.2% or 61.8% retracement of A-D, or target around points A or C.
4. Benefits and drawbacks
| Benefits | Drawbacks |
| Good risk-reward(tight stop, wide profit) | Requires precise measurement and manual detection can be difficult |
Summary
Harmonic patterns are a geometric reversal method using Fibonacci ratios.
Search for the five points XABCD.
Judge the pattern by the retracement at point Bto identify Gartley, Bat, etc.
Aim for a reversal at D (PRZ).
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