Harmonic Pattern is geometric patterns drawn on financial market asset price charts using Fibonacci numbers. This technique attempts to predict price movements and determine the exact reversal points for entry and exits. Forex and CFD (Contract for Difference) usually use this teachnique because it applies to various timeframes. Additionally, this technique is more more accurate than the use of technical indicators in general.
Harmonic Pattern: Combination of Geometry and Fibonacci
You can apply this trading technique based on the price pattern premise that have formed in the price history. Basically, this methodology use the Golden Ratio (0.618 or 1,618) and their derivatives (0.382, 0.50, 1.41, 2.0, 2.24, 2.618, 3.14 and 3.618). You can find the Golden Ratio in all structures of natural phenomena, architectural and artistic masterpieces. Additionally, Fibonacci levels can explain the trace of price movements on financial assets, including forex.
Weaknesses and Strengths Harmonic Pattern
One of the reasons why many traders like trading techniques with Harmonic Pattern is its reliability at identifying points of reversal and predicting how long a trend will last. However, it does not mean that this technique is 100% correct and there are no weaknesses at all.
This trading techniques require accuracy to examine price movements accurately. According to Investopedia, it requires patience, practice, and a lot of studies to master the patterns.
It can be concluded that the use of trading techniques with Harmonic Pattern requires five things:
- Knowledge of Fibonacci levels
- An understanding of the concept of timeframes in trading
- A convenient trading platform for drawing lots of Fibo Retracement and Extensions at once
- Mature Money Management
- Patience and accuracy in waiting for the formation of the Harmonic Pattern
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