The similarity between harmonic and basic chart patterns
is that, for each of them, the shape and structure are key factors to recognizing and validating a specific pattern. The next price movement can thus be projected with the goal of turning these patterns into profits. However, a key difference is that harmonic patterns are defined more precisely. They are 5-point reversal structures, containing combinations of well defined consecutive Fibonacci retracements
and Fibonacci extensions
, leaving less room for flexible interpretation.
Harmonic patterns continuously repeat themselves, especially in consolidating markets. There are basically 2 types of patterns: 5-point retracement structures like the Gartley
and the Bat
and 5-point extension patterns like the Butterfly
and the Crab
. Trading harmonic patterns requires patience because, due to the specificity of the ratios, patterns that appear harmonic may not be if they don't align with the proper measurements.