Harmonic Price Patterns
A harmonic price pattern allows traders to pinpoint recent trend retracements. They essentially allow a trader to see the future, and if the conditions are correct, they will show that a trend is going to continue its current trend after a minor detour. This type of trend uses Fibonacci retracements and extensions to allow a trader to make a profit by correctly predicting the pattern continuation.
One of the most basic harmonic price patterns is the ABCD pattern. This pattern can be either bearish or bullish, but either way, if you spot it, you can make a big profit by buying or selling a currency. These trends are easily identified by a change in price, only to be followed by a higher high, or a lower low.
The bullish trend will be spotted when a lower low occurs, only to see the price skyrocket back up to a new high. The bearish trend will see a higher high right before its price comes plummeting down. As its name indicates, the ABCD pattern consists of four price changes.
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Another basic pattern is the three drive pattern. This pattern is very similar to the ABCD, but has a third component to it. Instead of two peaks, this pattern has three (hence the name). This pattern again shows a retracement in price, but has one more price reversal than the ABCD.
Both of these harmonic price patterns are easily identified and do not take long to interpret. Still, they are powerful tools when it comes to spotting patterns on a price chart. The better you are at identifying these patterns, the more likely you are to make money.