What is Harmonic Pattern Indicator in Crypto Trading?
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| What is Harmonic Pattern Indicator in Crypto Trading? |
Also read: 9 Differences in Stocks and Crypto for Investment
What is Harmonic Pattern Indicator?
The harmonic pattern indicator is a price chart pattern that combines basic mathematical and numerical patterns and can be used to predict future price movements.
Cory Mitchell from Investopedia stated that the harmonic pattern indicator is a pattern that shows that the crypto price trend is a harmonic phenomenon. This pattern utilizes the Fibonacci sequence which is subdivided into smaller or larger ratios to predict the direction of price movement.
Reporting from the Tradingview page, the harmonic pattern combines Fibonacci reversal and extensions to produce five dots. The five points that have a special ratio will form various kinds of harmonic patterns.
Cory added that the harmonic pattern indicator is a pattern that many traders use to determine asset price reversals.
The Easy Trade team revealed that the harmonic pattern has a very high success rate compared to other price patterns. This pattern also works well across financial markets, including crypto.
Also read: How to Read Stochastic Indicator in Crypto
Harmonic Pattern Indicator Types
The harmonic pattern indicator itself has various types of patterns. The types of harmonic patterns that are popularly used in the trading world include:
Gartley Pattern
This pattern was introduced by HMGartley in his books entitled “ Profits in The Stock Market 2 ” and “ Fibonacci Levels ”, later developed again by Scott Carney.
Kathryn Gaw from IG Markets said that this pattern is characterized by two main rules, namely, the distance between point B and XA is 0.618 and the distance between point D and XA is 0.786. Point X indicates stop loss point and C indicates take profit point.
Bat Pattern
This pattern is said to be similar to the Gartley in terms of shape, but very different in size. The placement of stop-loss points depends on the type of bat pattern formed.
For bearish bat patterns, traders usually place stop losses not far above point D. While for bullish bat patterns, traders usually place stop losses not far below point D.
Butterfly Pattern
Also, this was first discovered by Bryce Gilmore. It applies various combinations of different Fibonacci ratios to identify potential price reversals.
In terms of structure, this price reversal pattern has four legs, namely XA, AB, BC, and CD. The distance between points A and X is about 0.768. This pattern helps the trader to identify point B and PRZ ( Potential Reversal Zone ), which will usually be the price level when the trader opens a position.
Crab Pattern
Cory Mitchell says that this pattern is one of the most accurate harmonic patterns. The reason is, the Crab pattern can provide price reversal information very shortly with the results of the Fibonacci analysis.
Reporting from the IG Markets page, another harmonic pattern indicator that is also widely used in crypto trading is the Deep Crab, ABCD, and Shark patterns.
Example of Harmonic Pattern Indicator
To better understand the harmonic pattern, here is an example of the Bullish Gartley Pattern in the EUR/USD forex market.
How to Use Harmonic Pattern Indicator for Trading
The Easy Trade team said that the success rate of using harmonic patterns for trading is influenced by the type of market, time frame, trader's psychological condition, and trading management. To be successful, traders need to do backtesting (testing predictive models) and proper implementation.
In general, here are some ways to use the harmonic pattern indicator for trading according to experts.
Bullish and Bearish Harmonic Pattern Indicator
Kathryn Gaw from IG Markets said that the bullish harmonic pattern indicates the possibility of rising prices in the market. When you see this pattern, traders will usually hold on to their assets and sell them later when the price has reached the profit target.
Meanwhile, a bearish harmonic pattern indicates a possible price decline. When traders see a series of bearish harmonic patterns, they will usually sell the existing asset to avoid a higher level of loss.
Entry and Stop Loss
When the harmonic pattern indicator shows a valid pattern and represents actual market conditions, traders can open positions in the PRZ area when a price reversal occurs, and place a stop loss below a long entry position or above a short entry position.
Harmonic Pattern Projection Distance
Cory Mitchell argues that if the harmonic pattern projection occurs on a price chart with a narrow period and is very similar to the reality of market conditions, then traders can make decisions to open or close positions according to the pattern formed.
On the other hand, if the harmonic pattern projection zone tends to widen because it is formed on a price chart with a long period, it is better for traders to confirm price movements with other indicators before taking a position.
Thus a discussion of what the harmonic pattern indicator is and its various patterns. For those of you who want to invest and trade crypto easily, download Pintu, an Indonesian cryptocurrency application that has been officially registered with CoFTRA.
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Reference:
CMC Markets, Harmonic Patterns. Retrieved date: 16-11-2021.
Easy Trade, Harmonic Pattern Success Rate. Retrieved date: 16-11-2021.
IG Markets, Top 7 Harmonic Patterns Every Trader Should Know. Retrieved date: 16-11-2021.
Investopedia, Harmonic Patterns in the Currency Markets. Retrieved date: 16-11-2021.
Tradingview, Harmonic Patterns. Retrieved date: 16-11-2021.
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