Trading Harmonic Price Patterns
There are three basic steps in spotting Harmonic Price Patterns:
Step 1: Locate a potential Harmonic Price Pattern.
Step 2: Measure the potential Harmonic Price Pattern.
Step 3: Buy or sell on completing the Harmonic Price Pattern.
Following these three basic steps, you can find high-probability setups that will help you grab those oh-so-lovely pips.
Let’s list our observations using the Fibonacci tool, a pen, and a piece of paper. 1. Move BC is .618 retracement of move AB. 2. Move CD is a 1.272 extension of move BC. 3. The length of AB is roughly equal to the length of CD. This pattern qualifies for a bullish ABCD pattern, a strong buy signal.
Once the pattern is complete, you must respond appropriately with a buy or sell order. In this case, you should buy, at point D, the 1.272 Fibonacci extension of move CB and put your stop loss a couple of pips below your entry price. The problem with harmonic price patterns is that they are so perfect that they are so difficult to spot, like a diamond in the rough.