Harmonic Patterns apply specific Fibonacci retracements and extensions to a price

structure.
These patterns can be quite powerful and often give you straightforward entry and
exit points. The main advantage of these patterns is that it leaves little to
guesswork, and relies on specific Fibonacci numbers.

A Harmonic pattern can be classified as an impulse wave, followed by two

corrective waves.
There are different types of patterns, but the most common is the Gartley pattern,
wherein the 2 corrective waves form within the boundary of the previous impulsive
wave and are equal in time & price. (AB = CD)

The Gartley pattern

The Gartley is made up of a series of price reversals and the retracement

percentages that establish an ideal pattern. The specification of Fibonacci points
within each structure is critical in determining valid trading opportunities.
It relies on a 78% retracement, and represents another way to capitalize on those
caught in a 62% whipsaw. This classic setup described almost 70 years ago, works
just as well now as it did during that time.

We can summarize the exact set of rules for the Gartley pattern as -
• A 61.8% B point retracement of XA leg.
• C point within range of 0.618-0.886 retracement of the AB leg.
• Equivalent AB=CD pattern is quite common.
XD to be 0.786 of XA AND 127/161 of BC.

Ideally all the above mentioned movements should fall within the Fibonacci ratios
mentioned. But there are two critical parts for forecasting this pattern.

Sunil Mangwani
www.fibforex123.com
The two conditions are for the reversal point D - which becomes the pivotal point for
a reversal – which should be met accurately for the pattern to be valid.
There has to be a confluence of Fib levels from the previous swings to confirm the
reversal zone –
• The first and most important is the 0.786 XA.
• Second is the BC projection of 1.272 to 1.618 BC.
This means that the Fibonacci relationships that are projected from different areas of
the structure all come to the same conclusion as to where we can expect point D to
form.
Point D is where we would look to enter the market with a bullish position.

The Gartley pattern can be found on any time frame, and once identified it can even
be traded for short positions within the pattern itself. If the first two legs of the
pattern have been established, a trade can be taken in anticipation of the unfolding
of the pattern to its last leg. This is because the rules for the pattern are very
specific, and the next part of the formation can be predicted with great accuracy.

For traders this becomes an excellent pattern, since it is incredibly accurate and
requires a smaller stop loss than most patterns……thus giving a better risk-to-reward
ratio.

Trading the pattern –

Once the reversal level D has been established, one would expect price to rally to the
upside.
Entry – The mid point of this pattern (point B) becomes an important level of
resistance. One should ideally enter the long trade on the break of the low of ‘B’
since this signifies a strong momentum to the upside.
Stop – To be placed below the low of the pivot point ‘D’
Targets - The initial target is 61.8% of the range ‘C-D’; however, the price usually
goes through the roof.
Ideally one should target the 127/161 projection of the range ‘A-D’ as the secondary
targets.

Sunil Mangwani
www.fibforex123.com
Different types of Harmonic patterns
1.) Gartley pattern
In this pattern, the Fibonacci ratios that give reliable reversals are –
a.) The D point forms at the 0.786 retracement of XA AND the 127 (minimum) or
the 161 projection of BC.
b.) The B point forms at the 0.618 retracement of XA.

Bullish Gartley

Bearish Gartley

Sunil Mangwani
www.fibforex123.com
2.) Bat pattern
In this pattern, the Fibonacci ratios that give reliable reversals are –
a.) The D point forms at the 0.886 retracement of XA AND the 161 (minimum) or the
261 projection of BC.
b.) The B point is usually the 0.382 retracement of XA.

Bullish Bat

Bearish Bat

Sunil Mangwani
www.fibforex123.com
Extended harmonic patterns
3.) Butterfly pattern
In this pattern, the Fibonacci ratios that give reliable reversals are –
a.) The D point forms at the 127 (minimum) or the 161 projection of XA.
b.) The B point is at the 0.786 retracement of XA.

Bullish Butterfly

Bearish Butterfly

Sunil Mangwani
www.fibforex123.com
4.) Crab pattern
This is the most precise pattern, which has fixed ratios for the setup.
In this pattern, the Fibonacci ratios that give reliable reversals are –
a.) The D point forms at the 161 projection of XA.
b.) The CD forms an extreme wave, which would be anywhere from 2.24 projection
of BC onwards. (2.24, 2.618, 3.14, 3.618)

Bullish Crab

Bearish Crab

Sunil Mangwani
www.fibforex123.com