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Forex trader, Market Analyst
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Frano Grgić is a Forex trader since 2009 and he shares his experience and knowledge about trading.

Like many Forex traders, Frano has earned a significant share of his knowledge the hard way by practicing and learning on errors. Technical trading and trading psychology have always ... more

Harmonic Trading In Forex

Date: Friday, May 14, 2021 11:30 PM EDT

In this article I want to show with you more details about harmonic trading strategy so you know more about harmonics. Harmonic trading in Forex is trading based on the harmonic pattern that appears on the market.

Harmonic patterns appear on the market when the market structure forms some type of harmonic patterns. If you have seen the market making some patterns all the time and they repeat in time then you can say you have found a harmonic pattern.

It appears on the market at some frequency when certain criteria is met. If you have read about harmonics then you know that they repeat by some frequency and they have some rules to follow.

Harmonic Trading Pattern Types

In Forex trading you will see several harmonic patterns which follow certain rules. There are six most known harmonic patterns and they are:

  1. Gartley pattern
  2. Butterfly pattern
  3. Crab pattern
  4. Bat pattern
  5. Shark pattern
  6. Cypher pattern

There are other harmonic patterns that are less known because they are not traded too much and they do not appear on the chart too often. Those are:

  1. The alternate Bat
  2. Deep Crab
  3. ABCD pattern
  4. XABCD pattern
  5. 121 pattern
  6. 5-0 pattern
  7. Three drives pattern

Harmonic Trading Pattern Rules

If you study all of them you will see that each trading pattern has its own rules, but you will also find that some of them use the same rules to be defined on the chart.

What is special about harmonic trading is that the harmonic patterns use Fibonnaci ratios to define where the trading entry point is. Entry point in the harmonic trading is called PRZ or potential reversal zone. Majority of patterns are reversal patterns which means you will trade them when the trend is expected to reverse.

Here are major Fibonnaci ratios or retracement levels are:

  • 23.6%
  • 38.2%
  • 61.8%
  • 50.0%
  • 78.6%

I will not get too much into details about Fibonnaci, but I will tell you that those retracements are used to define where the entry point is in harmonic trading. You can use calculator to calculate them.

Traders use them to define where the PRZ is by drawing them on the chart. Where most retracement meets together or forms some kind of zone it is called potential reversal zone or entry point.

That zone is meant to be used as an entry point in trading where the stop loss target would be below PRZ in case of bullish pattern and above in case of bearish pattern.

Profit target is usually on the first Fibonnaci retracement level or on the one of the levels that are used to define the harmonic pattern.

To increase the accuracy of the harmonic patterns you can use support and resistance levels because they will show you where the price will likely find support or resistance. Combining support and resistance with a harmonic pattern you will increase the success rate of each pattern.

Additionally you can use price action patterns which will help you define will the market reverse on the PRZ and currency strength meter to use strong and weak currencies in trading.

How to Detect Harmonic Pattern

You need practice and then in time you develop needed skills to spot harmonic patterns and to verify are they reliable or not for trading.

Some of the harmonic patterns are complicated so I suggest using only a few of them and focus on them.

If you do not know how to spot them or it is too hard to learn how to detect them on the chart you can use harmonic scanner or harmonic indicator you can use on the trading platform. 

Harmonic scanner can be used on the MT4 platform or it can be used through a web browser. You will find a harmonic indicator for cTrader platform or MT5 and you only need to search the internet. But, also prepare yourself to find other types of harmonic scanner because you will find free and paid harmonic scanner versions that are more or less accurate in detecting patterns.

If you have just started with Forex trading then harmonic scanner for a beginner is really useful. You can use a harmonic scanner with simple clicks because some versions are prepared to do the most work for you. You can find scanners that will draw patterns for you, send you notification when they appear and even show you entry and exit levels. One of them is IM harmonic scanner that is accessible over web broswer and that has IM mastery academy for learning.

One important note to remember is to find a scanner that will draw patterns on the chart and it will not change in time. That means when you see a pattern that is drawn, but not completed, will not change its shape how the market moves. In that case you will sometimes have invalid patterns.

Some scanners change their pattern shape as time passess and when you do the backtesting you find out that they are all 100% correct. Which cannot be true.

Conclusion

Harmonic trading in Forex with harmonic patterns listed here can be a profitable way of trading because some patterns have a high success rate. Success rate increases with other trading analyzing tools you can use. Sometimes you will see 80-90% success rate on some harmonic patterns.

Harmonic trading is for beginners and also advanced traders because with proper tools you can start trading in the beginning. Do not get overwhelmed when you start, but use some time to learn about harmonic trading and you will see that they are pretty similar and when you learn one you can learn all other patterns.

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