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Harmonic model and effective Forex trading steps

Harmonic model is a type of Forex price model that is quite complex and difficult to determine, so it is not widely used. However, according to experts, if traders clearly understand the nature of this model, they will apply technical analysis effectively. So to better understand this type of model, refer to the article below from Forex Trading !

General introduction to Harmonic model

The harmonic model is a relatively complex and difficult-to-use price model. Therefore, it is necessary to clearly understand the nature as follows:

What is a Harmonic Price Model?

A harmonic model is a type of pattern formed by connecting points in the Fibonacci ratio together on the pattern. Depending on each model, there will be different points and numbers of increasing and decreasing waves. Based on the Forex price model, investors can seek profits. Through rising waves and selling during falling waves. In addition, this model can give bullish and bearish reversal signals through different patterns.

Pros and cons of the Forex Harmonic price model

Like other price models, the Harmonic model also has some advantages and disadvantages as follows:

Outstanding advantages of the price model:

Harmonic shows price reversal signals and stop loss points with a fairly high accuracy rate.
This pattern appears frequently and repeatedly to predict reliable price movements.
Using Fibonacci ratios to standardize trading rules helps increase signals for patterns.
Harmonic model has the ability to promote good potential under certain market conditions.
This type of Forex price pattern can work in all trading time frames. At the same time, it can be used in combination with other indicators.

Outstanding advantages of Forex price models

Disadvantages of the pricing model:

As mentioned, price patterns are relatively complex so traders need high expertise and techniques to be able to recognize them.
Sometimes the Fibonacci indicator creates conflicts with Harmonic patterns, making it difficult for traders to detect reversal areas.
To use this model effectively, traders must have knowledge about what the Japanese candlestick pattern is, what the price model is, what is morning star …. Because if you have the knowledge and implement it, Combined together, will help you minimize risks during the investment process.

See more: Analyze & forecast trend effective candlestick pattern

Some popular Harmonic model that traders should know

Below are 6 typical Forex Harmonic price models compiled, you can refer to:

Forex Gartley Price Model

The Gartley Pattern is a popular Harmonic chart pattern used to identify potential reversal points in the market. This pattern is based on the Fibonacci ratio and is considered highly accurate when identified and traded properly.

This Gartley pattern consists of five points denoted as X, A, B, C, and D. These points must meet a specific Fibonacci ratio to be considered a valid Gartley pattern. Specifically, the points are as follows:

XA is a large price movement following the trend.
AB is a retracement of XA, usually at 0.618 or 0.786.
BC is a further movement in the direction of XA, usually equal to 0.382 or 0.50 of AB.
CD is a retracement of BC, usually at 0.786 or 0.886.
D is a potential reversal point, where the price could reverse and continue the original trend of XA.

Harmonic model butterfly

This group of reversal patterns Harmonic model is used to identify potential reversal points. This pattern is made up of 5 points denoted as X, A, B, C and D. The points have a shape similar to butterfly wings when plotted on a price chart.

To be able to recognize the butterfly pattern, traders need to determine the following requirements:

Price moves from point X to A, then navigates towards B at the 78.6% retracement of the XA trend type.
Next, at point B, the price will turn to point C at the retracement level from 38.2% – 88.6% of the AB downtrend.

At point C, the price turns back to D at the 161.8% 261.8% extension of segment AB. Simultaneously. Point D is also the retracement level of 127.2% – 161.8% of XA.

Bat price model

The bat pattern is a group price pattern Harmonic model used to identify potential reversal points. This type is made up of 5 points denoted X, A, B, C and D and has a shape similar to a bat’s wing.

Characteristics to recognize this model are:

Based on Fibonacci ratios: Points in the bat pattern must follow specific Fibonacci ratios to be considered valid. The main Fibonacci ratios used in this pattern include 0.382, 0.50, 0.618, 0.786, 1.27 and 1.618.
Shape: The bat pattern has a W (for bearish pattern) or M shape.
Location: The Bat pattern often appears at the end of an uptrend or downtrend.

Crab model

The crab pattern is one of the most accurate trading patterns in technical analysis. This type of pattern has 2 shapes: Bullish Carb and Bearish Crab. Refer to the information below to better understand these two types of shapes:

In the model you can identify through points, specifically:

The price will start to decrease from
At point B, the price turns down to point C at the retracement level of 38.8% – 88.6% of the uptrend segment AB.
The price returns to point D at the extension level from 261.8% – 361.8% of the uptrend segment AB. At the same time, at point D is also the 161.8% retracement level of the XA segment.

Forex Cypher price model

The Cypher pattern has 5 points of contact and 4 waves or legs between them. Each contact point will represent different reversal levels.

The Cypher pattern uses tighter Fibonacci ratios. This will create a steeper visual appearance.

Rules for implementing the Cypher pattern:

A qualified Cypher pattern will be made up of one pulse pin (XA). This is followed by a retracement leg (AB) that reaches at least the 38.2% Fibonacci retracement level of the XA leg.
When traded properly, the Harmonic price pattern can achieve remarkable returns and quite little risk.

Shark model

The Shark model is also known as the shark model. This pattern is made up of 5 points denoted as X, A, B, C and D. The points are shaped like a shark’s jaw when plotted on a price chart. Point A is the shark’s snout, point B is the top of the shark’s head, point C is the shark’s jaw groove and point D is the shark’s tail.

See more: Optimize trading with IC Markets Exchange

Instructions on trading steps Harmonic model

There are three steps to trading the Harmonic model quickly and effectively:

Step 1: Identify potential Forex Harmonic price patterns

Investors need to determine which Harmonic model the model belongs to. For each Butterfly model, Gartley model, bat model, 3 black crows pattern … there will be separate trading methods.

Step 2: Measure the potential Harmonic price model

Traders can use the Fibonacci and Draw Trendline tools to draw on the chart to determine exactly what model this belongs to. You can draw according to the following rules:

Point BC is the 0.618 retracement of the move point AB.
The CD move is a 1.272 scale extension of the BC move.
The length of AB is approximately equal to the length of CD.

Step 3: Place buy and sell orders, profit and loss stop points

After determining the model is complete, you proceed to make decisions on buy or sell orders.

Execute buy and sell orders to take profit — Execute buy and sell orders to make profit

Conclude

In the above article, Forex Trading has introduced to you the most general knowledge about Harmonic model. This type of Forex price model is complex and difficult to use. So it is usually only used by professional experts. However, the reversal signals that this model provides are very accurate. Able to help traders gain quite a lot of profits. Therefore, please spend more time researching and analyzing this price model through Forex Trading’s articles.