35. Harmonic Pattern

Harmonic patterns are specific price structures formed within trends that are based on precise mathematical ratios and measurements. Harmonic patterns are identified visually on charts by measuring swings or waves and projecting turning points based on Fibonacci ratios, which results in visually distinct and often reliable price structures on the charts.The harmonic pattern above is called a bullish bat pattern; the X point becomes the start point, which is connected to the last higher high of the price recorded as ‘A’. A lower high becomes point ‘C’ that fulfils the fib retracement ratio. The swing low before the point C happens to be point B. The pattern ends on a point D that is slightly higher than point X. These points, when plotted, resemble a bat, hence the name. The target price is the top point of the harmonic pattern.

Harmonic patterns reflect the cyclic behaviors and emotions in the market as prices fluctuate from extremes back to a mean or equilibrium. These patterns emerge as traders respond to shifts in supply/demand dynamics through predictable rhythms of optimism and pessimism. The Fibonacci ratios help quantify this mass psychology into defined price structures.

Harmonic patterns were first introduced by H.M. Gartley in his 1935 book “Profits in the Stock Market” and later expanded upon by Scott Carney in his 2010 work “Harmonic Trading: Volume One.