As you see, these are the three targets which are related with the levels of the Butterfly pattern. There is very little left to judgement because the Fibonacci relationships within harmonic patterns gives us an exact location of the potential turning point. This means that once broken, price tends to move in the direction of the preceding trend. If you agree with that , I will be very happy to see you updated this great article to make it more complete. In order to be considered valid, the two shoulders of the pattern must overlap at some point.
However, they also allow for an advantageous risk to reward ratio , especially the larger structures that form on the daily chart. This combination allows you to secure a nice profit in a relatively short period of time.
The first and perhaps most prevalent is trying to force support and resistance levels to fit. As I always say, if a level is not extremely obvious, it should be ignored. The second mistake I see among traders is attempting to trade a wedge on a lower time frame. Last but not least is the issue of timing.
As you may well know, timing is a key factor if you wish to succeed in the world of Forex. And when it comes to wedge patterns, timing is everything. This retest offers the perfect opportunity for an entry, however it does take patience to achieve. Be careful of entering on the first closed candle outside of the pattern as you will likely get a retrace of some sort.
The bull or bear flag is another name for a channel. So as you might expect, it is most often traded as a continuation pattern. Like the head and shoulders, flags often form after an extended move up or down and represent a period of consolidation.
I feel confident in saying that you could literally trade nothing but bull and bear flags and make very good money in the Forex market. This, of course, assumes that you have become a proficient price action trader.
There are a few reasons, but mostly due to the fact that these formations occur quite often. This is true even if you are trading the higher time frames. That said, you only need one profitable trade each month to make good money as a Forex trader. The measured objective in this case often allows for several hundred pips on most currency pairs. Combine that with a precise entry and a well-placed stop loss that is 50 to pips away, and you have a recipe for a profit potential of 3R or better just about every time.
Like the other patterns above, there are a few things you should watch out for when trading this formation. The first is perhaps the most obvious — never cut off the highs or lows in order to make the channel fit. Calculating the measured objective also tends to give traders fits. Doing so will only slow the learning process and also send you chasing trades in every which direction.
Becoming a successful trader is about finding an approach to the markets that fits your style, defining your trading plan and then refining those rules as you gain experience. So if you enjoy trading technical patterns, as I do, be sure to give some consideration to the three we just covered; they truly are all you need to become consistently profitable.
It contains all three price structures you studied above and includes the characteristics I look for as well as entry rules and stop loss strategies. These three patterns are easy to spot, simple to trade and highly effective. Hi Justin, thank you for your great and consistent work. Can this flag be valid? Having read a previous post re: What I like about these patterns is that once they form on the charts they are for the most part consistent and predictable.
My favorite one is the pennant. I love the way it bounces or rockets in its intended direction. It is a pattern that I myself is comfortable with and even teach it to my clients. Tareeq, you got it! In regard to you comment, I would please like you to teach me the pennant pattern you mentioned if possible.
Real world trading looks very different to nicely drawn illustrations. Maybe if you offered trade examples from actual trading within a third-party verified account you could be taken seriously. The thing is this: Hi JLTrader, perhaps you should have a look around the site before making such a drastic judgement call. When people are buying signals they are buying tips on these patterns. Justin, I am regular reader of your blog, I want to know that the patterns you explained is only for forex or can be applied in any instrument like commodities or stocks.
For the more inclined, there are also several harmonic indicators and software programs that will automatically detect various harmonic trading patterns.
The most widely traded harmonic patterns include the Gartley pattern, Bat Pattern, Butterfly Pattern , Cypher pattern, and the Crab pattern. The Gartley pattern was introduced by H.
M Gartley in his book, Profits in the Stock Market, The Gartley pattern is sometimes referred to as Gartley , and because is the exact page in the book where the Gartley pattern is revealed. So the Gartley pattern is the oldest recognized harmonic pattern and all the other harmonic patterns are a modification of the Gartley pattern. This could be any move on the chart and there are no specific requirements for this move in order to be part of a harmonic pattern. This move is opposite to the XA move and it should be about This price move should be opposite to the AB move and it should be The last price move is opposite to BC and it should be If BC is The overall price move between A and D should be The image below illustrates a Bullish and Bearish Gartley pattern: The black lines on the image above show the four price moves of the chart patterns.
The blue lines and the percentage values show the retracement relation between each of these levels. The green arrows show the potential price move of the pattern. The Bat harmonic pattern is a modification of the Gartley pattern, and was discovered by Scott Carney. This move should be opposite to the AB move and it should be This is how the bullish and the bearish Bat harmonic chart patterns appear: As you see, the Bat harmonic pattern is similar to the Gartley pattern, however, the retracement levels are different.
Both are considered internal patterns because the ending D leg is contained within the initial XA move. This is another modification of the Gartley harmonic pattern, which consists of the same four price moves. The retracement levels, though, are different, and this is considered and extension pattern as the ending D leg extends outside the initial XA leg.
This is how the bullish and the bearish Butterfly harmonic chart patterns look: Notice that the Butterfly harmonic chart pattern indicates that the AD move should go beyond t he initial price move XA.
In this manner, the Butterfly harmonic pattern is considered an external formation. The Crab harmonic pattern has some similarities with the Butterfly chart pattern. The Crab pattern actually looks like a stretched Butterfly sideways. The Crab also suggests that the last price move goes beyond the initial move, where a Fibonacci extension should be used. The Fibonacci levels used to identify the pattern are described below: This is how the Crab harmonic chart pattern looks like: The Cypher chart pattern is similar to the other chart patterns we already discussed, however, it has one specific difference.
This means that we use an extension level on AB in order to measure the BC output. Below you will find the list of the Cypher pattern retracement levels: This move is opposite to the XA move and it should be This move should be opposite to the AB move and it should be anywhere between See below the structure of the Bullish and Bearish Cypher formation. This is so because the general move is XC, which is bigger than the partial BC.
The image below will give you an example of an actual harmonic pattern on a candlestick chart: The formation we are looking at is a Butterfly pattern. We start with a bullish XA move. Then comes a contrary AB move which is The next BC move is opposite to AB and it takes These retracement levels confirm the presence of a bullish Butterfly chart pattern. We start with the AB move, which takes about Then comes the BC move which approximately reaches the The last move we identify is the CD move, which is about This is how we identify the bullish Cypher pattern.