What are Harmonic Patterns?
In forex market, recognizing chart patterns is the key to gaining expertise in trading and technical analysis. In order to recognize chart patterns perfectly one requires extensive practice as well as repetitive exposure. The expertise with which a trader recognizes patterns helps him/her to react to changing market conditions and thus trade profitably. Here, learn more about one such chart pattern-The Harmonic Pattern.
Harmonic Patterns Explained
The Harmonic pattern concept was introduced in by H.M. Gartley in the year 1932. In his concept, he mentioned regarding a 5-point pattern (referred to as Gartley) within his book called the Profits in the Stock Market. This pattern was later improved by Larry Pesavento and he set new rules of trading using the Harmonic or Gartley pattern.
The main concept behind the harmonic chart patterns revolves around the time/price movements that adhere to the relationships of Fibonacci ratio as well as its symmetry within the markets. The primary idea of utilizing the Fibonacci ratios is to determine the main turning points, extensions and retracements alongside a range of swing high as well as swing low points. The retracements and projections derived using these points (lows and highs) provides key pricing levels for placing Stops or Targets. Thus, Harmonic chart patterns form geometric patterns (projection and retracement swings/legs) using the Fibonacci series. These patterns provide traders with unique opportunities to understand the price movements, trend reversals and turning points in the market. In other words, it allows them to gather useful information regarding price entries, targets and stops and use it for placing profitable trades in the forex market.