Harmonic Patterns: Spot & Verify

Maya: A chart can look symmetrical and still be wrong. Welcome to Harmonic Patterns: Spot and Verify. I’m Maya. Today, um, Fibonacci measurements for potential reversals: the Gartley, Bat, and AB equals CD. Ike: I’m Ike. And, right, “close enough” isn’t a rule. We’ll spot three quick X-A-B-C-D sketches, then ask whether they survive measurement. Maya: First, uh, a Gartley. X to A is the initial swing. B retraces 61.8 percent of XA. C retraces 38.2 to 88.6 percent of AB. CD extends 127.2 to 161.8 percent of BC, and D sits at 78.6 percent of XA. That qualifies only if every check fits. Ike: If D is merely near 78.6, it’s a maybe, not a Gartley. Measure it... don’t let a pretty shape do the math for you. Maya: Second, a Bat check. Mark X-A-B-C-D. A valid Bat has B retrace 38.2 to 50 percent of XA; C, 38.2 to 88.6 percent of AB; CD extends 1.618 to 2.618 of AB; and D completes at 88.6 percent of XA. In our sketch, B is 61.8 percent, so it fails. Ike: Third, AB equals CD. Trace AB, then compare it with CD. If the lengths match, D is the potential reversal zone. If they don’t, uh, don’t call it AB equals CD. Maya: Confluence can help, but abrupt conditions can break any pattern. Common framing: entry near D, stop beyond X, then C and A as possible targets. Ike: And backtest those rules on your market and timeframe. Next episode, we’ll get into verification. See you then.

Maya: Last time, in “Rules, Ratios, and the Gartley/Bat/AB=CD,” we learned the exact geometric rules and ratios, with three live pass/fail checks. Ike: Today: Butterfly and Crab. When does a neat chart drawing become an actual trade? Maya: Not at D alone. These are five-point XABCD reversal patterns. D is a potential reversal zone, um, not a promise. Ike: Give me a clean Butterfly. Maya: X at 100, A at 120, B at 104.28, roughly a 78.6% retracement of XA, C at 112, and D at 125.44. That is about a 127.2% XA extension, so it’s a valid bearish Butterfly candidate. Ike: Candidate is the key word. I’d want reversal candles, volume at that PRZ, maybe RSI or MACD agreement, plus the broader trend. Maya: Right. Now a false Crab: X 100, A 120, B 110, C 116, then D 122. B and C fit reasonably, but D is only about a 110% XA extension, not the deep, often 161.8% Crab extension. Price continues higher; no reversal. Ike: So a scanner label is not proof. Maya: Exactly. Third example: the Butterfly reaches D at 125.44, but candles keep closing upward. No reversal candle, no trade. Ike: Backtest historical charts, manually verify the patterns, and remember tools vary in accuracy. Stops go just beyond the PRZ. Maya: That’s the filter: measure first, then verify. Ike: See you next time.