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.
