As you may have guessed, profiting off Harmonic Price Patterns is all about being able to spot those "perfect" patterns and buying or selling on their completion.
There are three basic steps in spotting Harmonic Price Patterns:
Step 1: Locate a potential Harmonic Price Pattern
Step 2: Measure the potential Harmonic Price Pattern
Step 3: Buy or sell on the completion of the Harmonic Price Pattern
By following these three basic steps, you can find high probability setups that will help you grab those oh-so-lovely pips.
Let's see this process in action!
Step 1: Locate a potential Harmonic Price Pattern
Oh wow, that looks like a potential Harmonic Price Pattern! At this point in time, we're not exactly sure what kind of pattern that is. It LOOKS like a three-drive, but it could be a Bat or a Crab...
Heck, it could even be a Moose! In any case, let's label those reversal points.
Step 2: Measure the potential Harmonic Price Pattern
Using the Fibonacci tool, a pen, and a piece of paper, let us list down our observations.
- Move BC is .618 retracement of move AB.
- Move CD is 1.272 extension of move BC.
- The length of AB is roughly equal to the length of CD.
This pattern qualifies for a bullish ABCD pattern, which is a strong buy signal.
Step 3: Buy or sell on the completion of the Harmonic Price Pattern
Once the pattern is complete, all you have to do is respond appropriately with a buy or sell order.
In this case, you should buy at point D, which is the 1.272 Fibonacci extension of move CB, and put your stop loss a couple of pips below your entry price.
Is it really that easy?
Not exactly.
The problem with harmonic price patterns is that they are so perfect that they are so difficult to spot, kind of like a diamond in the rough.
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