Go beyond basics with harmonic patterns, Elliott Wave theory, Fibonacci extensions, and professional multi-timeframe analysis techniques.
Harmonic patterns are advanced chart formations that use specific Fibonacci ratios to identify potential reversal zones. Unlike basic patterns, harmonics require precise ratio measurements, which makes them more reliable when they form correctly.
The ABCD pattern is the foundation of harmonic trading. It consists of two equal price legs (AB and CD) connected by a retracement (BC). The pattern signals potential reversals when price completes point D.
Key ratios: BC retraces 61.8% or 78.6% of AB. CD extends 127.2% or 161.8% of BC, or equals AB in length.
Named after H.M. Gartley who introduced it in 1935, this "222" pattern is one of the most reliable harmonics. It looks like an "M" (bullish) or "W" (bearish) shape with specific ratio requirements.
| Point | Ratio Requirement |
|---|---|
| B | 61.8% retracement of XA |
| C | 38.2% - 88.6% retracement of AB |
| D | 78.6% retracement of XA |
| CD | 127.2% - 161.8% extension of BC |
Discovered by Scott Carney, the Bat pattern offers excellent risk/reward due to its deep D point retracement. The key distinguishing feature is that point D completes at an 88.6% retracement of XA.
This pattern differs from Gartley and Bat because point D extends beyond the starting point X. It's an extension pattern rather than a retracement pattern, with D completing at a 127.2% or 161.8% extension of XA.
Use harmonic pattern scanners available on platforms like TradingView to identify potential setups. Manual identification is time-consuming and error-prone. Always confirm patterns with other technical factors.
Beyond basic retracements, advanced traders use Fibonacci extensions, projections, and clusters to identify high-probability trading zones.
Extensions project where price might go after completing a retracement. The key levels are 127.2%, 161.8%, 200%, and 261.8%. These are used for profit targets or to identify potential reversal zones in trending markets.
Projections (also called expansions) measure from a swing move and its retracement to project the next impulse. This helps identify where the current trend might extend to, useful for setting profit targets.
When multiple Fibonacci levels from different swings converge at the same price area, they create a "cluster" — a zone of high significance. These clusters often act as powerful support or resistance.
Fibonacci can also be applied to time. If a move takes X days, the next move often completes around 61.8%, 100%, or 161.8% of that time period.
Combines price and time by drawing diagonal lines from significant highs/lows. Useful for identifying dynamic support/resistance in trending markets.
Elliott Wave Theory proposes that markets move in predictable wave patterns driven by collective investor psychology. While complex, understanding the basics can provide valuable market context.
Markets move in cycles of 5 waves in the direction of the main trend (impulse waves labeled 1-2-3-4-5), followed by 3 corrective waves against the trend (labeled A-B-C). This 5-3 pattern repeats at every degree of trend.
Three inviolable rules define valid impulse waves:
Wave 2 cannot retrace more than 100% of Wave 1 (it can't go below the start of Wave 1)
Wave 3 cannot be the shortest of waves 1, 3, and 5 (it's often the longest and strongest)
Wave 4 cannot overlap with Wave 1 territory (the low of Wave 4 must stay above the high of Wave 1)
Corrective waves (ABC) take various forms: Zigzags (sharp 5-3-5 structure), Flats (sideways 3-3-5), and Triangles (contracting 3-3-3-3-3). Identifying the correction type helps anticipate the next impulse.
Elliott Wave is subjective—different analysts often count waves differently. Use it for market context rather than precise entries. It works best when combined with other analysis methods.
Professional traders analyze multiple timeframes to get the complete market picture. Higher timeframes show the overall trend, while lower timeframes provide precise entry points.
Start with higher timeframes and work down. The weekly chart shows the major trend. The daily chart shows the intermediate trend. The 4-hour or 1-hour charts provide entry triggers. This ensures you're trading in alignment with the bigger picture.
| Trading Style | Trend TF | Signal TF | Entry TF |
|---|---|---|---|
| Position Trading | Monthly | Weekly | Daily |
| Swing Trading | Weekly | Daily | 4H |
| Day Trading | Daily | 4H/1H | 15M/5M |
| Scalping | 1H | 15M | 5M/1M |
The highest probability trades occur when all timeframes align. If the weekly is bullish, the daily is pulling back to support, and the 4-hour shows a bullish reversal pattern—that's a high-quality long setup.
Confluence occurs when multiple technical factors point to the same price level. The more factors that converge, the higher the probability of a reaction at that level.
Previous highs/lows, round numbers, pivot points, and order blocks all represent structural levels.
Retracements and extensions from multiple swings converging at the same zone.
Key MAs (50, 100, 200) acting as dynamic support/resistance.
Chart patterns or harmonic patterns completing at structural levels.
A perfect confluence example: Price pulls back to the 61.8% Fib retracement, which aligns with a previous resistance-turned-support level, the 200 EMA, and completes a bullish Gartley pattern—all at the same zone.
Advanced patterns require disciplined execution. Here's how to approach them practically.
For harmonic patterns, enter at point D with confirmation (a bullish/bearish candle pattern). Alternatively, wait for price to break the nearest swing high/low after reaching D for additional confirmation at the cost of some profit potential.
Place stops beyond the pattern's invalidation point. For a bullish Gartley, the stop goes below point X. For harmonics, this is typically 1.13-1.27 extension of XA. Keep position size appropriate so the stop represents acceptable risk.
Use Fibonacci levels of the AD leg for targets. Common targets are: Target 1 at 38.2% retracement of AD, Target 2 at 61.8%, Target 3 at point A (100%). Consider scaling out at each level.
Practice identifying these patterns on historical charts before trading live. Use pattern recognition tools to speed up your learning. Start with higher timeframes where patterns are more reliable and give more time for decision-making.
Find a broker with professional charting tools for pattern analysis.