Harmonic Patterns in Trading: Gartley, Butterfly, Crab, Bat, Shark, Three Drives, ABCD, and Cipher — Complete Guide

Harmonic patterns such as the Gartley or Butterfly pattern are powerful tools for forecasting market movements. If you feel that traditional Price Action patterns are no longer sufficient for profitable trading, you are right. Entering the world of harmonic patterns can open new horizons for successful trades. Yes, it's a challenging journey that will require effort, but the results are worth it.

Why should you learn patterns like Gartley, Butterfly, Crab, Bat, and others? These patterns help pinpoint reversal points on charts by using Fibonacci levels. Trading with harmonic patterns requires patience and discipline but can significantly improve your results in both binary options and Forex trading.

If you think learning such complex tools is the "next level" in trading, get ready! We'll begin by breaking down the main harmonic patterns and how to correctly identify and use them in trading. Using Fibonacci levels in harmonic patterns helps to pinpoint entry and exit points, making these strategies highly effective.

So, put away any distractions and focus on this material, as it could seriously change your understanding of technical analysis. Harmonic patterns may seem complicated, but with the right approach and tools like MetaTrader, you'll learn to use these powerful models in your trading.

Harmonic Patterns in Trading: Key Strategies and Basics

Harmonic patterns, such as the Gartley pattern, have become an essential part of successful trading in financial markets. The foundations of harmonic patterns were laid by Harold Gartley in his book "Profiting in the Stock Market." The Gartley pattern is one of the most popular reversal patterns, allowing traders to accurately identify entry points. Larry Pesavento added Fibonacci levels to these patterns, describing their importance for more accurate predictions in his book "Fibonacci Ratios and Pattern Recognition."

Additionally, Scott Carney, author of "Harmonious Trading," contributed significantly to the development of harmonic patterns by proposing models such as the Crab, Bat, and Shark. These models, based on geometric figures, help traders accurately identify market reversals, making them indispensable for those using technical analysis.

How to Recognize Harmonic Patterns on a Chart

Harmonic patterns like Gartley, Butterfly, Crab, and others use Fibonacci levels to identify key price reversal points. The primary goal of these patterns is to predict further price movement with high accuracy. Geometric shapes like M or W help traders determine where a trend reversal is likely.

Advantages of Trading Harmonic Patterns

Harmonic patterns, unlike traditional Price Action patterns, require precise adherence to Fibonacci levels. If a shape does not match these levels, it is discarded. Although waiting might take time, harmonic patterns yield high results in long-term trading, especially in Forex and binary options. These patterns help to accurately identify reversal points, making them especially useful for both short-term and long-term trading.

It is essential to note that successful harmonic pattern trading is impossible without proper risk management. By applying solid risk management strategies, traders can significantly improve their market results. These patterns are effective on short timeframes like M1 or M5 and on daily charts, allowing them to adapt to various trading styles.

Defining Harmonic Patterns and Their Key Features

Harmonic patterns consist of five key points and include models like the Butterfly, Crab, Bat, and Cipher. These patterns are based on strict geometric proportions and Fibonacci levels, making them especially accurate for predicting market movements. Each figure resembles an M or W shape, making them easy to recognize on a chart.

How to Identify Key Points in Harmonic Patterns

The formation of harmonic patterns occurs as follows:

• X — the starting point of the pattern
• XA — the first impulse wave
• AB — the correction after the first wave
• BC — the second impulse wave in the same direction as XA
• CD — the final corrective wave

These waves must adhere to precise Fibonacci proportions for the pattern to be considered valid. For example, in the "Inverse Head and Shoulders" pattern, the head must be at 1.618 of the left shoulder, and the right shoulder must be at 0.618 of the head.

Why Harmonic Patterns are Important for Trading

Harmonic patterns allow traders to identify key entry and exit points accurately, making them indispensable for trading on any time frame. Traders using these patterns can forecast both short-term and long-term price movements with high accuracy. These patterns are particularly effective in Forex but can also be successfully used in binary options trading to generate consistent profits.

Applying harmonic patterns in combination with other technical analysis tools such as candlestick models and support and resistance levels allows traders to make more informed decisions.

Harmonic Patterns and Fibonacci Levels: How to Set Up and Use Them

Fibonacci levels play a crucial role in identifying harmonic patterns on price charts. These levels allow traders to accurately identify reversal points, making them an essential tool in technical analysis. Using the correct Fibonacci ratios helps not only in identifying reversal points but also in forecasting future price movements. Setting up these levels is convenient using platforms like MetaTrader 4, which provides all the necessary tools for working with patterns.

How to Set Up Fibonacci Levels for Trading Harmonic Patterns

Before trading harmonic patterns, it is essential to correctly set up Fibonacci levels on the chart. These levels include:

• 0.786
• 0.886
• 1.13
• 1.272
• 1.414
• 2.0
• 2.4
• 3.618

These key Fibonacci levels help to accurately identify correction and price expansion moments. For example, levels 0.786 and 0.886 indicate deep corrections, while levels 1.272 and 1.618 are used to identify possible trend expansions.

The Role of Fibonacci Ratios in Harmonic Patterns

Fibonacci ratios are not directly related to the Fibonacci number sequence but are derived from the golden ratio. These ratios play a crucial role when working with harmonic patterns as they help to accurately identify key points where price reversal is likely. Here are some of the key ratios and their calculations:

• 0.382 = 1 – 0.618
• 0.786 = square root of 0.618
• 0.886 = fourth root of 0.618 or square root of 0.786
• 1.13 = fourth root of 1.618 or square root of 1.27
• 1.618 = golden ratio
• 2.618 = square of 1.618
• 3.618 = 1 + 2.618

How to Correctly Place Fibonacci Levels on the Chart

To use Fibonacci levels effectively, you need to correctly place them on the chart. In MetaTrader 4, this is done as follows:

1. Place the Fibonacci grid on the chart, starting from point X of the pattern and moving to point A.
2. Then double-click on the Fibonacci grid and select "Fibo Properties" in the context menu.

Setting Up Fibonacci Levels in MetaTrader

The next step is to open the "Fibonacci Levels" tab and add all the necessary levels for working with harmonic patterns, such as 0.786, 1.272, and 2.618. These levels will help you accurately identify key reversal and price expansion points on the chart.

Using Fibonacci Levels for Trading Harmonic Patterns

Applying Fibonacci levels can significantly improve your results when trading harmonic patterns. These levels help traders accurately identify entry and exit points in the market. For example, when forming the Gartley pattern, a price correction to the 0.618 or 0.786 level often indicates a reversal, while an expansion to the 1.272 or 1.618 level helps to forecast trend continuation.

Trading using Fibonacci levels is suitable for both short-term and long-term trading. Regardless of the selected timeframe, correctly setting up Fibonacci levels will enhance your trading strategy and allow you to more accurately forecast market movements.

Harmonic ABCD Pattern: A Simple Guide for Beginners

The Harmonic ABCD pattern (or AB=CD) is one of the simplest and most commonly used reversal patterns in technical analysis. However, despite its apparent simplicity, trading this pattern can be challenging, especially for beginners. The ABCD pattern consists of three waves: AB, BC, and CD, where AB and CD waves move in the same direction, while BC is a corrective wave.

How to Trade the ABCD Pattern

The Harmonic ABCD pattern is a reversal pattern, meaning that after the pattern is completed, a price direction change is expected. Point D is key for opening a trade — it signals the completion of the pattern and the market's readiness for a reversal, whether upward or downward.

Symmetry in the ABCD Pattern

The key feature of the ABCD pattern is the symmetry between segments AB and CD. The pattern visually resembles the letter "N," making it easy to recognize on the chart.

There are both bullish and bearish ABCD patterns. The bullish ABCD pattern suggests a price reversal upwards after forming two rising highs, while the bearish ABCD pattern suggests a reversal downward after two declining lows.

How to Identify the ABCD Pattern with Fibonacci Levels

The ABCD pattern begins with wave AB. Then, a sharp correction (wave BC) typically occurs at Fibonacci levels ranging from 0.382 to 0.886 of AB. Ideally, the correction is at 0.618. After that, point C signals a reversal, and the price moves in the same direction as wave AB, forming the final wave CD. Point D should be found within a range of 1.13 to 2.618 from wave BC.

• Correction BC can end at various Fibonacci levels: 0.382, 0.618, 0.786, 0.886.
• After BC correction is complete, point D should be found at an extension of 1.13 to 2.618 of BC.

Trading Strategies for the ABCD Pattern with Fibonacci Levels

To trade the ABCD pattern effectively, traders often use Fibonacci levels to identify entry and exit points. For example, if BC correction ends at the 0.618 level, then point D is expected at the 1.618 level of BC. This allows you to accurately forecast further price movement and determine a potential entry point for buying or selling.

Practical Application of the ABCD Pattern in Trading

In practice, the ABCD pattern demonstrates high efficiency when trading in various markets, including Forex and binary options. Even with minor corrections at point D, traders can successfully open trades and profit from these reversals, as the key in binary options trading is to correctly predict the price movement direction.

How to Set Price Targets for the ABCD Pattern

To calculate price targets after point D, use Fibonacci levels. Stretch the grid from point A to point D and identify targets at the 0.382 or 0.618 levels. These levels will serve as the minimum targets, and further movement can be predicted using the levels of points A and C.

How to Trade the ABCD Pattern: Key Rules

Let’s summarize the ABCD pattern:

• Find the three key points ABC: segment AB represents the trending impulse, while BC is the correction.
• Measure the BC correction. It should be at Fibonacci levels from 0.382 to 0.886 of AB.
• Identify point D. Use the Fibonacci grid stretched from B to C to find the symmetrical point D.
• Set price movement targets. For this, stretch Fibonacci levels from A to D. Minimum targets are at levels 0.382 and 0.618, while maximum targets are at points A and C.
• If possible, place a pending order at point D in the opposite direction of CD movement.
• For Forex: set a stop-loss behind point D.

Gartley Pattern — Correct Identification and Use of the Harmonic Pattern

The harmonic Gartley pattern is a classic trend continuation pattern that forms during price correction. The bullish Gartley pattern continues the uptrend, while the bearish Gartley pattern signals the continuation of the downtrend. This pattern allows traders to predict further price movement based on corrective waves. The Gartley pattern is based on the ABCD model, which acts as a correction against the main trend. The entry point for a trade is usually at point D, which serves as an indicator of the end of the correction phase.

How to Recognize the Gartley Pattern on a Chart

The Gartley pattern visually resembles the letter "M" for the bullish pattern and an inverted "M" or "W" for the bearish one. These letters are easy to recognize on the price chart, making the Gartley pattern one of the most popular harmonic patterns among traders. Identifying the pattern begins with finding the ABCD model, which forms the key structure of the pattern.

How to Confirm the Gartley Pattern Using Fibonacci Levels

To accurately identify the Gartley pattern, you need to use Fibonacci levels. Start by stretching the Fibonacci grid from point X to point A. The B correction should be at the 0.618 level. If this condition is met, then you are most likely looking at the Gartley pattern. However, if the B correction exceeds point X, the pattern is considered invalid.

How to Correctly Identify Points C and D in the Gartley Pattern

The next step is identifying points C and D. Point C should form at levels from 0.382 to 0.886 on the Fibonacci scale relative to wave AB. This point signals the beginning of a new impulse. Point D forms at levels from 1.272 to 1.618 from wave BC, and it should not exceed the 0.786 level from wave XA. If all conditions are met, the Gartley pattern can be considered confirmed.

• Point C should be at levels 0.382 – 0.886 on the Fibonacci scale from wave AB.
• Point D should form at levels 1.272 – 1.618 from wave BC.
• Point D should not exceed 0.786 of XA, otherwise, the pattern is considered invalid.

Opening a Trade on the Gartley Pattern

After point D is confirmed, you can open a trade in the direction of the current trend. The bullish pattern signals a continuation of the uptrend, while the bearish pattern signals a continuation of the downtrend. It is important to correctly calculate the price movement targets using Fibonacci levels.

• Waves XA and BC should align with the main trend.
• Waves AB and DC are corrective movements relative to XA.

How to Set Targets for the Gartley Pattern

To calculate price movement targets after forming point D, stretch the Fibonacci grid from point A to point D. The nearest target is at the 0.382 level, and the more distant target is at the 0.618 level. These levels help traders accurately forecast further price movement after confirming the Gartley pattern.

How to Correctly Identify and Trade the Gartley Pattern

The main steps for trading the Gartley pattern include:

• Find the emerging pattern on the chart in the shape of an "M" (for a bullish pattern) or "W" (for a bearish one).
• Use Fibonacci levels to check: point B should be at the 0.618 level from XA.
• Identify point C, which should be at the level from 0.382 to 0.886 from wave AB.
• Find point D, which should be at levels from 1.272 to 1.414 from wave BC, and check it at the 0.786 level from XA.
• After confirming the pattern, open a trade in the direction of the current trend.
• For Forex: set a stop-loss behind point D.

Gartley Butterfly Pattern — Correct Identification and Use of the Harmonic Pattern

The Gartley Butterfly pattern is a classic reversal pattern that allows traders to accurately identify entry points at the beginning of trend reversals. Like other harmonic patterns, the Gartley Butterfly can form in both upward and downward trends, making it a versatile tool for trading. This pattern applies to both bullish and bearish reversals.

How to Identify the Gartley Butterfly Pattern on a Chart

The Gartley Butterfly is one of the most common and popular harmonic patterns due to its high accuracy and frequent appearance on charts. It resembles the Gartley and Bat patterns but has its unique features. In the bullish pattern, the butterfly forms with a sharp price rise from point X to point A, followed by a correction. In the bearish pattern, the opposite occurs — a sharp price drop.

How to Correctly Identify Points C and D in the Gartley Butterfly Pattern

To trade the Gartley Butterfly pattern correctly, it's crucial to identify the key points C and D:

• Point C should be at Fibonacci levels from 0.382 to 0.886 from wave AB, indicating the start of a new impulse.
• Point D should form at Fibonacci levels from 1.618 to 2.618 from wave BC. It should be lower than point X in the bullish pattern and higher than point X in the bearish pattern.

Point D should also be around 1.272 of wave XA, confirming the correct formation of the pattern. If these conditions are met, the pattern is considered ready for trading.

How to Set Targets for the Gartley Butterfly Pattern

Once points C and D are identified, you can set price movement targets. The nearest target is at point B, while the farther target is at point A. These levels will help you determine where to fix profits during a successful trend reversal.

Trading Strategies for the Gartley Butterfly Pattern

The Gartley Butterfly pattern is most commonly used for trading trend reversals. This pattern allows traders to enter the market at the very beginning of a trend reversal, whether it is an upward or downward trend. Fibonacci levels help accurately identify corrections and predict further price movement.

• The nearest target is at point B, while the farther target is at point A.
• If the pattern is formed correctly, the likelihood of a successful reversal is high, making it an effective tool for forecasting market movements.

How to Correctly Identify and Trade the Gartley Butterfly Pattern

To trade the Gartley Butterfly pattern successfully, follow these steps:

• Find the XA wave on the chart. In the bullish pattern, this will be a sharp price rise, and in the bearish pattern, a sharp price fall.
• Point B should form at 0.786 from wave XA.
• Identify point C, which should be at Fibonacci levels from 0.382 to 0.886 from wave AB.
• Point D should be at Fibonacci levels from 1.618 to 2.618 from wave BC and lower than point X for the bullish pattern.
• After confirming point D, open a trade in the direction of XA (upward or downward).
• The nearest target is at point B, while the farther target is at point A.
• For Forex: set a stop-loss at point D.

Crab Pattern — Reversal Harmonic Pattern

The "Crab" pattern is one of the most popular reversal harmonic patterns used to predict trend reversals. The pattern got its name due to the extended "CD" leg. Like the Gartley Butterfly, the Crab pattern can have bullish or bearish formations, making it a versatile tool for predicting both upward and downward trends.

How to Recognize the Crab Pattern on a Chart

The main difference between the Crab pattern and others is its extended CD leg, which forms at a level up to 1.618 from XA. While the Gartley Butterfly has a shorter wave, the Crab pattern's CD leg is more extended. This makes the Crab pattern suitable for identifying deeper corrections and reversal points.

How to Correctly Identify Key Points in the Crab Pattern

To trade the Crab pattern effectively, it is essential to identify its key points, such as points B, C, and D:

• Point B should be at Fibonacci levels from 0.382 to 0.618 of XA. This indicates the first correction after the initial movement.
• Point C forms at Fibonacci levels from 0.382 to 0.618 of wave AB.
• Point D is a critical reversal point that forms at levels from 2.24 to 3.618 of BC. It should also be no higher than 1.618 from XA.

Trading Strategy for the Crab Pattern

Once points C and D are confirmed, trading can begin against the current trend based on the predicted price reversal. For example, if you observe a downtrend and the Crab pattern forms with point D below point X, this may signal an upcoming upward movement. The primary targets for trading are:

• The nearest target is at point B.
• The farther target is at point A, which serves as the maximum target for the reversal.

How to Correctly Identify and Trade the Crab Pattern

To trade the Crab pattern successfully, follow these steps:

• Find the XA wave — a sharp drop or rise in price.
• Point B should be at Fibonacci levels from 0.382 to 0.618 of XA.
• Identify point C, which should be at Fibonacci levels from 0.382 to 0.618 from AB.
• Point D should be at levels from 2.24 to 3.618 of BC and no higher than 1.618 of XA.
• After confirming point D, open a trade against the CD trend — this is the key entry point.
• For Forex: set a stop-loss at point D.

Deep Crab Pattern: Differences and Features

The Deep Crab pattern is a variation of the Crab pattern, where the AB correction forms at a deeper Fibonacci level — 0.886. Otherwise, the structure and targets of the pattern remain identical. The key difference of the Deep Crab is a stronger correction at the AB stage, which can lead to a sharper price reversal.

• The AB correction in the Deep Crab should be at 0.886, while in the regular Crab it varies from 0.382 to 0.618.

Bat Pattern — Harmonic Continuation Pattern

The "Bat" pattern is one of the key harmonic patterns used for predicting price movement. It is very similar to the Gartley pattern, with some minor differences. The main difference is that point D in the Bat pattern forms at a deeper Fibonacci level — 0.886 from XA, whereas in the Gartley pattern this level is 0.786. This allows traders to more accurately predict corrections and trend continuations.

How to Recognize the Bat Pattern on a Chart

The formation of the "Bat" pattern begins with the longest wave XA. This is followed by a pullback where point B forms at Fibonacci levels from 0.382 to 0.5. This phase is crucial as it helps traders anticipate further price movement. Then point D forms at the 0.886 level of XA, signaling a deep correction and readiness for a trend continuation.

How to Correctly Identify Key Points in the Bat Pattern

To trade the "Bat" pattern effectively, it is essential to identify points B, C, and D correctly:

• Point B should be at Fibonacci levels from 0.382 to 0.5 of XA. This is a corrective wave signaling the start of the pattern formation.
• Point C forms at levels from 0.382 to 0.886 of wave AB. This point is crucial for identifying the trend reversal.
• Point D is the key reversal point, forming at 0.886 of XA. It should also be within the Fibonacci levels from 1.618 to 2.16 of BC.

How to Use the Bat Pattern for Trend Continuation

The Bat pattern is a trend continuation pattern. Once point D is confirmed, the current trend is expected to continue. Price movement targets are set using Fibonacci levels from point A to point D:

• The nearest target is at the 0.618 level of AD, which often serves as the first profit-taking level.
• The farther target is at point A, which can be used as the maximum target for trend continuation.

How to Correctly Trade the Bat Pattern

To trade the "Bat" pattern successfully, follow these steps:

• Identify the XA movement — this should be the longest and most sustained movement in the pattern.
• Point B should be at Fibonacci levels from 0.382 to 0.5 of XA. This is the first correction.
• Identify point C — it should be within levels from 0.382 to 0.886 of AB.
• Point D forms at the 0.886 level of XA and within levels from 1.618 to 2.16 of BC.
• Open a trade at point D in the direction of the trend that formed during wave XA.
• The target for the movement is the 0.618 level of AD and then point A.
• For Forex, set a stop-loss at point A to minimize possible losses.

Alternative Version of the Bat Pattern

There is an alternative version of the "Bat" pattern where the CD leg is longer. In this version, point D can be lower (for a bullish pattern) or higher (for a bearish pattern) than point X. This allows for stronger corrections and trend continuations.

Three Drives Pattern — Harmonic Reversal Pattern

The "Three Drives" pattern is a powerful harmonic reversal pattern based on Elliott Wave Theory. Unlike other harmonic patterns such as ABCD, the "Three Drives" pattern does not include an ABCD figure. It consists of three trending peaks or troughs, which form five legs and signal a trend reversal.

The bullish "Three Drives" pattern forms in a downtrend and consists of a series of decreasing lows. In contrast, the bearish "Three Drives" pattern forms in an uptrend, consisting of a series of increasing highs.

How to Recognize the Three Drives Pattern on a Chart

The main idea of the "Three Drives" pattern is to find three consecutive peaks or troughs, with the last two forming within Fibonacci levels of 1.272 to 1.618. If two of these peaks or troughs are on the same level, this is considered an ideal scenario for a reversal.

How to Use the Three Drives Pattern for Market Analysis

The "Three Drives" pattern is a reversal pattern, meaning trades should be opened against the current trend. Here’s how you can use this pattern for market analysis:

• If the pattern is bullish, Fibonacci levels should be used from the highest point of the pattern to the lowest. The nearest target is the 0.618 level, while the farther target is the 1.0 level.
• If the pattern is bearish, Fibonacci levels should be drawn from the lowest point of the pattern to the highest. The targets remain the same: 0.618 and 1.0.

This approach allows you to accurately determine the moment of trend reversal and set clear trading targets.

How to Correctly Trade the Harmonic "Three Drives" Pattern

Trading the "Three Drives" pattern requires careful setting of Fibonacci levels and following key rules:

• The formation of a bullish pattern begins in a downtrend. At the same time, each subsequent peak and trough should be lower than the previous one.
• The formation of a bearish pattern occurs in an uptrend, where new local highs and lows are higher than the previous ones.
• Peaks or troughs 2 and 3 should be at Fibonacci levels from 1.272 to 1.618 of previous movements.
• The trading targets for the pattern: the nearest target is the 0.618 level from the Fibonacci grid, while the maximum target is the 1.0 level.
• For Forex: a stop-loss should be set beyond the third peak or trough to minimize risks.
• Trades are opened against the current trend, making the "Three Drives" pattern effective for finding reversals.

Trading the Three Drives Pattern with Fibonacci Levels

The "Three Drives" pattern effectively uses Fibonacci levels to predict key reversal points. The 1.272 and 1.618 levels play an important role in determining reversal targets. Accurate measurements allow traders to place trades against the current trend with a high probability of successful reversal.

Using the "Three Drives" pattern with Fibonacci levels helps traders preemptively identify optimal entry and exit points, as well as minimize risks by setting stop-losses beyond key levels.

How to Set a Stop-Loss When Trading the Three Drives Pattern

To protect your position and minimize risks, it is recommended to set a stop-loss at the level beyond the third local peak or trough. This will help avoid significant losses in case of unexpected market movements.

For successful trading of the "Three Drives" pattern, it is also important to use additional analysis tools, such as support and resistance levels, to confirm pattern signals and increase the likelihood of success.

Shark Pattern — Harmonic Continuation Pattern

The "Shark" pattern is an expanding triangle that can be easily recognized on the price chart. This pattern signals a trend continuation and is a powerful tool for market analysis. The entry point for a trade occurs after point D is formed, making this pattern ideal for identifying reversals and trend continuations.

In the Shark pattern, the key points are C and D. Importantly, in the bullish pattern, point C forms above point A, while point D forms below point X. This gives traders clear guidelines for building their strategies based on Fibonacci levels.

How to Recognize the Shark Pattern and Its Key Levels

The Shark pattern is unique in that it does not require the formation of point B. However, traders should pay attention to the formation of point D, which should be within Fibonacci levels from 0.886 to 1.13 from wave XA. It is crucial that point C forms above point A, confirming the reversal nature of the pattern. Point C should be in the Fibonacci range from 1.13 to 1.618 from wave AB.

Trading the Shark Pattern: Fibonacci Levels and Targets

After the Shark pattern is formed, traders can identify price movement targets using Fibonacci levels. To do this, the Fibonacci grid is stretched from point C to point D. The nearest target is usually at the 0.618 level, and the furthest is at point C, which helps accurately predict price movement and establish positions.

Entry and Exit Points When Trading the Shark Pattern

Once the Shark pattern is completed and point D is formed, a trade can be opened in the direction of the XA leg. The main targets are set at the 0.618 Fibonacci level, which helps traders optimally manage their positions and maximize profits from market movements. The farthest target is point C, providing additional confidence in the trading direction.

How to Correctly Trade the Shark Pattern

When trading the Shark pattern, it is important to follow several key rules:

• The pattern represents an expanding triangle, signaling a trend continuation.
• Point D should form within Fibonacci levels from 0.886 to 1.13 from XA.
• Point C should be at levels from 1.13 to 1.618 from AB, and it should be above point A.
• Targets are set based on Fibonacci levels from point C to point D. The nearest target is the 0.618 level, and the farthest target is point C.
• The trade is opened after the pattern is completed at point D, in the same direction as the XA leg.
• For Forex, a stop-loss is set at point D to minimize risks.

Using Fibonacci Levels to Predict Price Movement

Fibonacci levels play a key role in predicting price movement using the Shark pattern. They help traders accurately determine the entry point for a trade and set price movement targets. Using these levels significantly increases the likelihood of successful trades.

Traders using the Shark pattern can rely on these levels for long-term market analysis, making this pattern an excellent tool for analyzing various timeframes.

How to Set a Stop-Loss When Trading the Shark Pattern

To minimize risks when trading the Shark pattern, it is important to set a stop-loss beyond point D. This will protect the trader from sudden market movements and preserve capital in the event of an unfavorable price reversal. It is also important to use support and resistance levels to confirm the signal and accurately determine the entry point.

Cipher Pattern or "Reverse Butterfly" Harmonic Pattern

The Cipher pattern, also known as the "Reverse Butterfly" pattern, is a harmonic continuation pattern. One of the key features of this pattern is that the price reversal occurs not at point C but at point X, making it an excellent tool for analyzing market movements and finding optimal entry points.

This pattern forms during trend continuation and can be effectively used by traders to predict further price movements. The Cipher pattern helps traders find good entry points in an already established trend, making it especially useful for traders working with trend-following strategies.

How to Recognize the Cipher Pattern on a Chart

The Cipher pattern most often forms at the beginning of a trend movement and is used to analyze both bearish and bullish movements. One of the key characteristics of this pattern is the longest XA movement formed on the chart. In the case of a bearish formation, traders should prepare to open a bearish position after the pattern is completed.

Trading the Cipher Pattern: Using Fibonacci Levels

To trade the Cipher pattern successfully, it is necessary to check the key Fibonacci levels. Point B should form within 0.382 to 0.618 from the XA wave. Then, point C should be within 1.272–1.414 from AB. After point D forms at the 0.786 level from XA, a sell trade can be opened in the bearish pattern.

Targets for the Cipher Pattern

The main targets when trading the Cipher pattern should be set at points A and C. These levels will help traders accurately predict future price movements and determine the right exit points for the trade. It is important to use the Fibonacci grid for a more accurate calculation of the target price movement.

How to Correctly Find and Trade the Cipher Pattern

To effectively trade the Cipher pattern, it is necessary to follow several important rules:

• The Cipher pattern most often forms at the beginning of a trend movement, so it is important to look for it in the early stages of the trend.
• The longest movement in the pattern is the XA wave, which defines the initial market movement.
• Point B should be at Fibonacci levels from 0.382 to 0.618 from the XA wave.
• Point C should be within the range of 1.272–1.414 from the AB wave, which is a key indicator for the further trend reversal.
• Point D should be at the 0.786 level from the XA wave — this is a key level for opening a trade.
• Targets for the trade are set at points A and C, which help determine the optimal profit-taking levels.
• Trades are opened in the direction of the current trend, which allows the Cipher pattern to be used for trend continuation.
• To minimize risks, it is recommended to set a stop-loss at point X.

Using the Cipher Pattern for Trend Trading

The Cipher pattern is ideal for trend continuation, especially in its early stages. It helps traders find entry points with minimal risks by identifying correction and reversal moments using Fibonacci levels. This pattern can be used on both short-term and long-term timeframes, making it a versatile trading tool.

How to Set a Stop-Loss When Trading the Cipher Pattern

To protect capital when trading the Cipher pattern, it is recommended to set a stop-loss beyond point X. This will minimize losses in case the price moves in the opposite direction. Fibonacci levels also help refine entry and stop-loss points, making this pattern a reliable tool for trend trading.

Indicators for Harmonic Patterns in Trading

Harmonic patterns are an excellent tool for market analysis, but manually plotting them requires time and knowledge. To simplify the process, traders can use harmonic pattern indicators for MetaTrader4, which automatically identify key points on the chart and provide ready-made data for analysis. These tools save traders significant time and allow them to focus on decision-making.

If you prefer not to manually build patterns, indicators can automatically calculate all the necessary points using Fibonacci levels. This avoids mistakes and increases the accuracy of analysis. One of the popular automatic harmonic pattern indicators is available for download at the link below:

Download the harmonic pattern indicator for MetaTrader4

Drawbacks of Harmonic Patterns in Trading

Despite their high accuracy, harmonic patterns have some drawbacks that traders should consider. One major disadvantage is the need to wait for the complete formation of the pattern. This means that traders may miss several strong entry points that occur outside the patterns, especially during extended trend movements. Additionally, patterns require patience, as they don’t always form quickly.

Another downside is the complexity of the analysis itself. Traders not only need to understand how to plot patterns but also how to correctly identify Fibonacci levels where the points should form. Incorrect identification of these levels can lead to errors in trading.

For example, some novice traders may struggle with analyzing harmonic patterns. They must have certain knowledge to use this tool correctly. Understanding patterns, as well as support and resistance levels, is a crucial aspect of successful trading using these schemes.

How to Complement Your Analysis with Candlestick Patterns

To improve the accuracy of determining entry points, it’s worth using candlestick patterns and Price Action models. They help quickly identify price reversals and confirm the D points of harmonic patterns. Combining several analysis methods helps generate more accurate signals.

Risks and Limitations of Trading Harmonic Patterns

It is important to consider that trading harmonic patterns carries certain risks. First, a trader may miss important entry points by waiting too long for the pattern to form. Second, it is crucial to strictly follow the rules for plotting the patterns and use Fibonacci levels to confirm points.

Additionally, effective use of these tools requires a solid knowledge base. Beginners may find it difficult to master all the theory and start effectively applying patterns in practice. However, understanding Elliott Waves and other methods of technical analysis can improve trading results.

Using indicators to automate pattern searching can significantly simplify the task, but the trader must still be able to interpret the received data and make decisions based on deep analysis.

Harmonic Patterns in Trading: Conclusions

Harmonic patterns play a vital role in technical analysis as they demonstrate that price strives for symmetry even in seemingly chaotic markets. By using harmonic models, traders can find profitable entry points, which are especially effective across different timeframes and with various trading instruments.

These patterns are based on strict rules of point formation, which are often supported by support and resistance levels and candlestick Price Action models. However, if the pattern points are not properly formed, there is a high likelihood of error and losses.

Advantages of Harmonic Patterns

Key advantages of trading with harmonic patterns include:

• High win rate — due to the precise formation rules and the use of Fibonacci levels, pattern signals often result in successful trades.
• Versatility — harmonic patterns can be used on any timeframe, from minute to daily charts.
• Predictable targets — after the pattern is formed, price often reaches at least the minimum targets, giving traders a clear understanding of when to close the trade.
• Combination with other tools — patterns work well in combination with other technical analysis tools, allowing traders to more accurately determine entry and exit points.

Drawbacks of Harmonic Patterns

Despite their advantages, harmonic patterns also have a few disadvantages:

• Formation complexity — correctly constructing patterns requires deep knowledge of Fibonacci levels and understanding market geometry.
• Challenging for beginners — inexperienced traders may find it difficult to quickly spot and interpret patterns on the chart, especially during complex or chaotic price movements.
• Different signals across timeframes — patterns may provide different signals on different timeframes, complicating decision-making.
• Dependency on other tools — for successful trading, patterns often require additional analysis using support and resistance levels, as well as candlestick patterns, to accurately determine reversals.
• Delayed formation in binary options — harmonic patterns perform better in the Forex market, while in binary options trading, profits may be smaller due to the longer wait for their formation.

Overall, harmonic patterns remain one of the most effective methods of market analysis, especially when properly used in combination with other tools. They are suitable for both novice and experienced traders, although they require thorough preparation and an understanding of the construction rules.