➡️ Harmonic pattern - The Gartley ⬅️
(reading time = 7 minutes)
📊 Harmonic price patterns are those that take geometric price patterns to the next level by utilizing Fibonacci numbers to define precise turning points. Unlike other more common trading methods, harmonic trading attempts to predict future movements.
By finding patterns of varying lengths and magnitudes, the trader can then apply Fibonacci ratios to the patterns and try to predict future movements. 📊
🔮 The Gartley - Bullish and Bearish 🔮
+ The Gartley was originally published by H.M. Gartley in his book Profits in the Stock Market2 and the Fibonacci levels were later added by Scott Carney in his book The Harmonic Trader.
+ The bullish pattern is often seen early in a trend, and it is a sign the corrective waves are ending and an upward move will ensue following point D.
+ All patterns may be within the context of a broader trend or range and traders must be aware of that.It's a lot of information to absorb, but this is how to read the chart.
+ We will use the bullish example. The price moves up to A, it then corrects and B is a 0.618 retracement of wave A. The price moves up via BC and is a 0.382 to 0.886 retracement of AB.
+ The next move is down via CD, and it is an extension of 1.13 to 1.618 of AB. Point D is a 0.786 retracement of XA. Many traders look for CD to extend 1.27 to 1.618 of AB.The area at D is known as the potential reversal zone.
+ This is where long positions could be entered, although waiting for some confirmation of the price starting to rise is encouraged.
+ A stop-loss is placed not far below entry, although addition stop loss tactics are discussed in a later section.
+ For the bearish pattern, look to short trade near D, with a stop loss not far above.
🚫 Issues with Harmonics 🚫
+ Harmonic price patterns are precise, requiring the pattern to show movements of a particular magnitude in order for the unfolding of the pattern to provide an accurate reversal point.
+ A trader may often see a pattern that looks like a harmonic pattern, but the Fibonacci levels will not align in the pattern, thus rendering the pattern unreliable in terms of the harmonic approach. This can be an advantage, as it requires the trader to be patient and wait for ideal set-ups.
+ Harmonic patterns can gauge how long current moves will last, but they can also be used to isolate reversal points. The danger occurs when a trader takes a position in the reversal area and the pattern fails.
+ When this happens, the trader can be caught in a trade where the trend rapidly extends against them. Therefore, as with all trading strategies, risk must be controlled.
+ It is important to note that patterns may exist within other patterns, and it is also possible that non-harmonic patterns may (and likely will) exist within the context of harmonic patterns.
+ These can be used to aid in the effectiveness of the harmonic pattern and enhance entry and exit performance. Several price waves may also exist within a single harmonic wave (for instance, a CD wave or AB wave).
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