Trading based on harmonic patterns mostly depends on proper measurement of Fibonacci retracement in relation to price movements.
A description of all the patterns can be found in the article: Harmonic Trading – Most Efficient Patterns. Harmonic formations are patterns of continuation of the trend. For this reason, it is important that the movement we expect is consistent with earlier trend. The most effective is the formation, where point D falls on significant support/resistance.
Last week harmonic formation ABCD appeared on two different pairs with the Euro. On the EURAUD there is a potential formation and we need to wait for the D point test which is is required to make it valid. On the other hand, on the EURPLN reaction to D point has already occurred on Friday and the declines may continue. The harmonic formation of ABCD is quite effective, and is supported by the fact that its variants are also used in other charting methodologies.
In both pairs, the formation appears in the opposite direction to the previous trend. Another characteristic is the equality of the segments AB and CD. This allows you to easily determine the point D, which should end the movement and then return to the earlier trend.
Potential ABCD formation on EURAUD
Starting from July EURAUD is moving in a bullish trend. Currently, a sharp downward movement has occurred which is opposite to the previous trend. The formation is shaping on the chart starting from last Thursday. The AB and BC sections can already be determined. By using the range tool on the MT4 platform can easily be assigned point D, which should be in the 1.5050 level. EURAUD closed Friday’s session at 1.5115, so there are still 65 pips down to go.
After the test of 1.5050, the upward movement and the return of EURAUD to the upward trend should occur. Possible breakdown of 1.5050 is a less likely scenario. However, if such a move would occur, it would negate the harmonic formation and such motion should be supported by a dynamic bearish candle.
Bearish ABCD on EURPLN in progress
In case of the EURPLN pair, we observed its downward movement since the end of September. Last Monday, there was a weak growth movement, where you can mark consecutive sections AB, BC, CD. After comparing AB and CD, it should be noted that point D should fall in 4.2620. This level was only slightly touched by the wick, and than supply quickly began to attack.
As a result, in the nearest future we can expect continuation of the EURPLN declines within the the harmonic formation. Sometimes happens that point D is tested twice. However, such price behavior is not very frequent. An upward movement may occur on Monday, as Friday’s session ended with 4 successive bearish candles in a row.