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Whale Trading

Harmonic Patterns: Reading Swings with Ratio-Based Structures

In this chapter we look at harmonic patterns.

In one sentence:

They use swing relationships and ratios
to highlight potential reversal zones
within an X–A–B–C–D structure.

  • Well-known examples are AB=CD, Gartley, Bat, Crab, Butterfly, etc.
  • Almost all of them are defined using Fibonacci-style ratios.
  • In real trading, they work much better as
    “zones of interest” than as exact turning points.

The diagram below shows
the most basic AB=CD structure in simplified form:

  • AB move down (or up),
  • BC retracement,
  • CD leg continuing in the same direction
    with similar length/slope to AB.

AB=CD does not guarantee reversal at D.
It simply says: “This area is structurally interesting;
watch how price reacts here.”

1. What Is a Harmonic Pattern?

1-1. Swing legs and their relationships

Harmonic patterns start by marking a cluster of swings:

  • X–A–B–C–D

and then asking:

  • How far did each leg retrace or extend
    relative to earlier legs?
  • Do these legs show some symmetry or proportion,
    rather than random movement?

Loosely:

  • X→A: initial strong move,
  • A→B: first retracement,
  • B→C: move back in the trend direction,
  • C→D: final push where
    several ratio projections cluster together.

The focus is on:

Relative size and direction of each leg,
and whether they form a balanced structure.

1-2. The role of Fibonacci ratios

Harmonic patterns are usually defined with Fibonacci numbers:

  • 0.382 / 0.5 / 0.618 / 0.786 / 1.27 / 1.618 and so on.

In practice:

  • Treat these as ranges, not exact ticks.
  • Look for zones where:
    • multiple retracements and extensions overlap,
    • and those levels align with
      s-r
      support/resistance areas.

That zone then becomes
a candidate area where you watch price action more closely.

2. Basic Structure: X-A-B-C-D and Ratio Zones

The next diagram shows
a typical bullish X–A–B–C–D harmonic structure:

  • X→A: first impulse up,
  • A→B: corrective pullback,
  • B→C: trend continuation,
  • C→D: final correction/extension
    (the D zone is where your attention focuses).

Key points:

  1. Look at the relative size and direction of each leg.
  2. On C→D, project:
    • retracements and extensions from XA, AB, BC, CD,
    • and see where they cluster.
  3. Ask whether that cluster:

Only when several things line up
does D become interesting as a potential reaction zone,
not as an automatic reversal point.

3. Common Harmonic Patterns

There are many named harmonic patterns.
In practice, a handful of them cover most use cases.

3-1. AB=CD pattern

AB=CD is the most basic template.

  • The AB and CD legs have similar length and slope, and
  • the move often looks roughly symmetrical in price and sometimes in time.

Traders then watch the D area
as a candidate for a short-term reversal or pause.

3-2. Gartley, Bat, Crab, Butterfly

Patterns like Gartley, Bat, Crab, Butterfly
are all variations of the same X–A–B–C–D skeleton.

The main differences are:

  • how deep the B retracement is relative to XA,
  • how far C extends relative to AB,
  • and how far D extends relative to BC or XA.

Rough intuition:

  • Gartley tends to have more moderate retracements and extensions,
  • Bat / Crab / Butterfly often push D
    to deeper or more extended price regions.

In real trading:

  • The exact label (“is this a Bat or a Crab?”)
    is less important than:
    • how stretched the overall structure is,
    • and whether the D zone overlaps
      prior swings and S/R areas.

4. Harmonic Patterns vs Other Chart Patterns

Harmonic patterns watch similar price swings
as other chart patterns, but with a different emphasis:

All of them are different ways to ask:

“Is this price region stretched or balanced
relative to the recent path of price?”

5. Practical Use: How to Keep It Realistic

Here are some ways to use harmonic concepts
without turning your trading into a pure math puzzle.

5-1. Think in “zones,” not exact ticks

Use Fibonacci and harmonic rules as soft guides:

  • Focus on zones where:
    • multiple Fibonacci levels cluster,
    • prior highs/lows are nearby,
    • s-r marks
      a meaningful support/resistance level,
    • volume
      shows unusual spikes or drying-up.

Call this cluster a confluence zone.
Your edge comes more from confluence than from
one single magical ratio.

5-2. Separate entry, stop, and target

For a bearish harmonic idea, for example:

  • D zone
    = area where multiple projections line up.
  • Entry
    = only after you see price actually react:
    • reversal candles from
      candles,
    • or small patterns (micro double top, mini head and shoulders)
      from chart
      forming inside/around D.
  • Stop
    = the price level where you say
    “if price gets here, this structure is invalid,”
    not “I’ll give it more room because I like the pattern.”
  • Targets
    • first target around the most recent swing low/high,
    • further targets using a fraction of the pattern’s height
      or trailing stops.

Position size and total risk
should still follow risk-management.

6. Common Traps in Harmonic Trading

  1. Turning it into a number-matching game

    • Focusing on “0.618 vs 0.61”
      instead of the bigger picture.
    • The market does not owe you exact decimals.

  2. Overweighting the pattern name

    • “This is a Bat, so price must reverse here”
      is dangerous thinking.
    • Better: “This area combines stretched structure
      plus overlapping ratios and levels –
      I will watch price action here.”

  3. Ignoring context

    • A small harmonic pattern against
      a very strong higher-timeframe trend
      is often just a pause, not a major reversal.
    • Always check:

  4. Not planning for failures and extensions

    • D zones fail often: price overshoots and
      patterns stretch or morph.
    • Failed reactions around D can themselves
      become useful signals,
      as explored in failure.

7. Study Roadmap: Where Harmonics Fit In

Instead of making harmonics your main framework,
it’s usually healthier to treat them as a secondary lens.

Useful companions:

Treat harmonic patterns not as a way to
guess the exact turning price,
but as a way to measure whether price
is stretched or balanced relative to recent swings,
within a broader structural framework.