Trade Share CFDs for your favourite companies and 50+ U.S. stocks. Click here.
Refer a friend
Title Icon

Intermediate

Have a basic understanding of Forex, but not sure how to
level up? We have got you covered.

Understanding Harmonic Price Patterns in the Forex Market

Harmonic Price Patterns allow traders to predict future price movements and trend reversals to make ideal entry and exit decisions in the Forex market. The financial markets follow the ebb and flow cycles which are always in sync with the growth and decline phases of the different markets. These natural cycles follow a harmonic price behavior and they are determined by specific harmonic patterns. In this article, we discuss how you can make the most of harmonic price patterns

What are Harmonic Price Patterns?

Harmonic price patterns are based on the idea that market trends are harmonic in nature, which means they can be further divided into bigger or smaller waves to make accurate predictions about the price direction. It uses Fibonacci numbers to define market turning points through graphical representation. The Harmonic Price Patterns use the Fibonacci series of numbers (0, 1, 1, 2, 3, 4, 8, 13etc.). It breaks down the sequence into different ratios to analyse the market direction.

Top Harmonic Price Patterns a trader must know

1. ABCD pattern

The ABCD pattern indicates where and when a trader should enter and exit a trade. This pattern can also be termed as the foundation of all the other patterns since it consists of the four most important points each harmonic pattern uses to identify the (A) beginning of the trend, (B) the first market reversal, (C) the market high/low point, (D) and the end of the trend. This pattern consists of three movements, formed by AB, BC, and CD, where AB and CD are equal in length.

  • The AB movement is known as an impulse
  • The BC movement is known as a correction
  • The CD movement is known as an impulse going in the intimal direction

The bullish ABCD pattern starts with a price fall from point A to B, followed by a price increase to point C, which is again followed by a price decrease equal to the intimal fall from point C to D. At point D, traders get buy signals to profit from the uptrend. The bearish ABCD pattern starts with the currency pair prices shooting up from point A to B, before they fall to make a price low at point C and finally rising back up to the initial uptrend from point C to D. At this point D, traders get sell signals to profit before a downtrend occurs.

Harmonic Price Patterns in Forex
2. Three-drives pattern

The Three-drives pattern is a reversal pattern that identifies market trend reversals through a series of higher highs and lower lows. It uses the 127% and 161.8% Fibonacci extension numbers to calculate the higher highs and lower lows, signalling potential buying or selling opportunities in the market. The bullish Three-drives pattern starts with the first low continuously decreasing prices, retracing back to a higher price before making another new low at the second point. After the second low, the price shoots up again before falling for one last time and maintaining the low at the third drive, signalling traders to open a long position to maximise profits. On the other hand, the bearish Three-drives pattern is the exact opposite of the bullish version. It starts with its first high at point 1, retracing to a lower position before making its second high at point two. The second high is followed by a price drop once again, which is, in turn, followed by one last price high known as the third drive, signalling traders to open short positions to maximise profits.

Harmonic Price Patterns in Forex
3. Cypher pattern

The Cypher pattern is an advanced harmonic pattern that provides traders with potential breakouts and breakdowns in the market. It includes 5 points made from 4 price waves. Each point in this pattern signals a market reversal. The 5 points on the charts are named XABCD, and they look like either rising peaks or falling lows, depending on the market's momentum, signalling traders to enter or exit the market during potential breakouts. The bearish Cypher pattern starts at a point X, after which it follows a continuous fall in the prices before rising back up to a level lower than the initial price point. The second swing takes place from this point B, where the prices continuously fall again before reaching a new price high, which signals traders to exit the market due to the strong downtrend ahead. The bullish Cypher pattern also starts at point X, from a low price point, where it continues to rise till point A and falls back to point B, marking a low. From this point, the prices shoot up to mark a new high again and fall for one last time to point D, sending traders a buying signal at this level due to the strong uptrend ahead.

Harmonic Price Patterns in Forex
4. BAT pattern

The BAT pattern is a continuation and retracement pattern that occurs during a temporary trend but leads back to the original market direction. It is also used to identify the potential reversal ones in the market during a particular time period. The BAT pattern identifies continued patterns in the market during temporary directional changes. The first leg of the BAT pattern leads to a retracement level that stops halfway through the initial leg's length, where the price changes direction and starts increasing again. After continuing to rise for a brief moment, the prices retrace again and mark a steep fall, signalling traders to enter the market and profit from the bullish trend reversal. To profit from the bearish trend reversal, exactly opposite of this price movement takes place and sends traders a signal to exit the market after the currency pair price makes two lows, before rising back up to retrace back to its original direction and fall.

Harmonic Price Patterns in Forex
5. 5-0 Pattern

The 5-0 harmonic pattern is a reversal pattern that depends on 50% retracement levels to identify market reversals. It begins with either a strong uptrend or a downtrend in the market, followed by corrective price movements thereon that look like a zigzag pattern in most cases. This pattern begins a new trend and sends entry or exit signals to traders accordingly. The bearish 5-0 pattern begins at a point 0, rising to a price point creating a new high before it falls some more. After the fall, the prices rise back up briefly before making a new low which is double the previous level. The price then increases for one last time before correcting its direction and falling again, signalling traders to exit the market immediately. The bullish 5-0 pattern also begins at 0 but makes a steep fall, marking a new price low. It then increases for a brief moment, only to fall back again, followed by another price increase. The last leg of this bullish pattern makes another price low, after which it finally retraces to the upward direction, signalling traders to enter markets immediately.

Harmonic Price Patterns in Forex
6. Butterfly pattern

The Butterfly pattern is also a reversal chart pattern that shows a security trade within a price range in the market after an extension in the price move. It is used to identify potential retracements with four legs marked as XABCD. It helps traders with the ideal entry and exit points in the market, depicting the most profitable buy and sell opportunities. The bearish Butterfly pattern starts with the price falling from point X to A, marking a new price low, after which it increases to less than 50% of the fall for a brief time. The price falls back near the initial low again before making one last rise which marks a new price high. After this point, the market reverses to its original position with continued price fall, sending sell opportunities to traders. The bullish Butterfly pattern starts with a steep price rise from point X to a, after which the prices fall by over 50% before making one last rise again. After the price high, the market takes a downturn before reversing to an uptrend, sending traders buying opportunity signals.

Harmonic Price Patterns in Forex
7. Gartley pattern

The Gartley pattern is a harmonic pattern used to calculate the market's high and low reaction prices. It is made from 4 different price swings that help traders determine when they can enter or exit the market. On a price chart, these patterns either look like an 'M' or 'W', depending on whether it is a bullish Gartley pattern or a bearish Gartley pattern. The bullish Gartley pattern is used to identify buying opportunities and starts with a sharp increase in the currency pair price. The increase marks a new price high, after which it falls for some time before increasing again. The second price high is followed by the last price decrease, where traders receive market entry/buy signals to take long positions before an uptrend. The bearish Gartley pattern is used to identify selling opportunities and starts with a sharp decrease in the currency pair price. The decrease marks a new price low which is followed by an uptrend for a brief moment in time. There is a price low again, after which the currency pair prices shoot up for one last time before entering a market downtrend, signalling traders to exit the market or enter a short position.

Harmonic Price Patterns in Forex
8. Shark pattern

The Shark pattern is similar to the 5-0 pattern and consists of a failed, impulsive and retracement wave.

  • A failed wave is the one that moves against the market direction and is not able to make a new high or low in the market
  • An impulse wave is the one that is a strong price movement in the market's main direction
  • A retracement wave is a market correction that finally follows the main trend direction, providing traders with support or resistance levels

This pattern helps traders trade alongside the market direction that occurs on the final leg of the pattern and make profitable entry or exit decisions. The bullish Shark pattern starts with a steep price increase which is followed by a price fall that does not last long. After reaching the decreased price point, the market follows an uptrend for a brief time again before making a final steep fall, signalling traders to enter the market at the completion to benefit from the uptrend ahead. The bearish Shark pattern is the exact opposite and starts with a steep price fall, followed by a fluctuation in the prices before rising back up again, signalling traders to exit the market at the leg's completion to benefit from the market downtrend ahead.

Harmonic Price Patterns in Forex
9. Crab pattern

The Crab pattern is an extreme pattern that occurs during volatile price changes and provides traders with potential reversal points in the market. It enables traders to enter or exit the market at extremely high or low points. Traders can identify when and where a current market direction can reverse and make trade decisions accordingly through the Crab pattern. Like the Cypher, Butterfly and other harmonic patterns, this pattern also includes 5 points named XABCD and four legs starting from XA, AB, BC and CD. The last leg, CD, is the point that provides buying or selling opportunities to traders. The bullish Crab pattern starts at point X with a price increase before it falls down to increase again. The last leg, CD, is a steep fall in the market prices which gives traders a buying opportunity in the market as the prices begin to rise thereafter. Whereas the bearish Crab pattern starts at point X with a price decrease, rises to point B and falls again at point C. After this, it finally increases sharply to point D, sending traders a sell signal in the market as prices begin to fall thereafter.

Harmonic Price Patterns in Forex

Trade the Harmonic Price Patterns in three easy steps

  • Locate the potential harmonic pattern on the price chart by identifying a zigzag fluctuation in the market prices
  • Measure the harmonic pattern using the Fibonacci numbers and note down the retracements and extensions
  • Buy or sell as soon as the pattern completes, depending on if the market is bearish or bullish Trading with Blueberry Markets, you can pinpoint significant market trends through our reliable and transparent trading platform.
  • A bearish harmonic pattern signals traders to take short positions in the market or exit it
  • A bullish harmonic pattern signals traders to take long positions in the market or enter it

Ready to start experimenting with different harmonic chart patterns? Sign up for a live trading account or try a risk-free demo account on Blueberry Markets.

Recommended Topics

  • What is Slippage in Forex Trading?

    Slippages occur when a currency pair order is executed at a price different from the set market order price.

  • Buy limit vs Sell Stop Orders in Forex

    Placing buy limit and sell stop orders help employ a price control strategy on forex trades. Let's take a look at buy limit vs sell stop orders.

  • The Best Time Frame For Forex Trading

    A time frame is a designated time period where forex trading takes place. Time frames can be measured in minutes, hours, days, weeks, months and years.

  • Top Technical Indicators in Forex

    Technical indicators are a market direction signal based on the current and historical price movement of a currency pair that provides traders with future price expectations

  • Top Continuation Patterns

    A continuation pattern indicates if the current market trend is going to continue in the same direction or not

  • How to Ace Divergence Trading in Forex

    The forex market is all about timing your trades well. Divergences give traders a market reversal signal right before a price trend changes

  • How To Trade Forex With Japanese Candlesticks?

    A Japanese Candlestick is a technical analysis tool used to analyze the currency pair’s price movement in the forex market.

  • Top Momentum Indicators To Analyse Trend Strength

    Momentum indicators are technical analysis tools that determine in which direction the market is headed and how strong or weak the ongoing trend is

  • Types of Moving Averages Every Trader Should Know

    Moving Average is a technical indicator which averages out currency pair prices in a specific time period in order to accurately identify market trend reversals and support-resistance levels.

  • 8 Popular Intraday Trading Indicators

    Intraday Trading Indicators help place successful short-term trade orders in the forex market.

  • What is the Tweezer Candlestick Formation?

    The Tweezer Candlestick formation is a reversal pattern that indicates either a market top (strong uptrend) or market bottom (strong downtrend)

  • Average Directional Index

    The ADX is a strength indicator that measures how strong or weak a particular market trend is.

  • How to Use Elliott Wave Theory For Forex Trading?

    The Elliott Wave Theory analyses a currency pair’s long-term price movement in the forex market.

  • What are Pivot Points in Forex

    Pivot Points help traders identify market reversals. With Pivot Points, traders can predict the support and resistance levels of a currency pair to make entry and exit decisions.

  • Keltner Channel

    Keltner Channel is a technical indicator that provides traders with strong continuation signals and trend directions by assessing a currency pair's price volatility.

  • Leading vs Lagging Indicators

    Leading and lagging indicators help traders measure the future and current performance of a currency pair, respectively. These indicators can help make successful trading decisions.

  • What is Relative Strength Index?

    Relative Strength Index (RSI) helps traders understand how frequently the currency pair prices change in the forex market to predict the future market prices.

  • Wide Ranging Bars

    Wide Ranging Bars are strong momentum indicators that help traders understand the market direction and identify ideal entry and exit points.

  • Double tops and bottoms

    Double Tops and Double Bottoms chart patterns help traders identify solid bullish and bearish trend reversals in the Forex market, and in turn, find the ideal market entry and exit points.

  • Falling and Rising Wedges

    When you are trading currency pairs in the Forex market, it is essential to know when the market can possibly reverse. The Falling and Rising Wedges pattern help identify market reversal signals and accurate market entry and exit points.

  • Forex Scalping Strategy

    Scalping refers to trading currency pairs in the Forex market based on real-time analysis. With Forex scalping, you hold a position for a very short period and close once you see a profit opportunity.

  • Symmetrical Triangle Pattern

    Symmetrical Triangle Patterns help identify market breakdowns (price fall) and breakouts (price rise), and in turn, help you plot the entry and exit prices for profitable Forex trading.

  • Introduction to Technical Analysis in Forex

    Technical analysis in Forex trading provides you with significant market trends, reversals and fluctuations and in turn helps you long and short term trades.

  • Trading breakouts and fakeouts

    Breakout and fakeout trading enable traders to take positions in rising and falling markets.

  • Fundamental Analysis in Forex Trading Explained

    Fundamental analysis in Forex trading is one of the several methods you can use to determine the relative security and intrinsic value of a nation’s currency.

  • 8 Top Commodity Trading Strategies

    Commodity trading is one of the best ways to diversify your portfolio and protect yourself from losses incurred due to inflation.

  • What is a Doji Candlestick?

    The Doji Candlestick is a pattern used in technical analyses of trend reversals in a market.

  • Moving Average: The Complete Guide

    Moving Average is used in Forex trading to compare the current currency pair pricing and where it stands with respect to the current average pair prices.

  • What is Volatility Index (VIX) and How Do You Trade It?

    One of the most popular trading markets in the world, the foreign exchange market allows investors to make quick money by trading currencies.

  • Forex Profit Calculator

    On average, a Forex trader can make anywhere between 5 to 15% of the initial amount they invested in the market.

  • Understanding markets gaps and slippage

    The foreign exchange rate reveals valuable details about particular currencies a trader wishes to trade-in.

  • What is a pip in forex?

    When trading in the Forex market, you need to have a close eye on two currencies at the same time. PIP helps you denote the change in a currency pair’s value.

  • Introduction to order types

    Order types in Forex trading determine and control how you enter and exit the market.

  • Using orders to manage risk

    Forex risk management includes a robust set of rules and regulations that protect you against Forex's negative impacts.

  • Managing risk in 7 steps

    Risk management in Forex is essential to individuals, groups of individuals, and organizations since it enables them to implement measures that help mitigate Forex risk and its negative impact.

  • Bullish and Bearish Flag Patterns

    Blueberry Markets discusses why it is essential to study the bullish and bearish flag patterns in Forex. Learn more.

Learn Icon

Advanced

Master risk management and
become an expert forex trader.
Move on to the advanced course.

Guide to Forex
Trading indicators.

Enter your details to get a copy of our
free eBook

Thank you, please check your inbox for your ebook.

Ads BG

Start a risk free
demo account

News & Analysis

Catch up on what you might
have missed in the market.

Runner graphic

Ready to trade at
Blueberry Markets?

Your best trading experience
is a click away