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Harmonic analysis in Forex Part III

16-02-2018 | No Views : 280

Harmonic analysis in Forex Part III
In the first and second part of the harmonics analysis series in forex, we discussed two important harmonic trading models, the AB = CD model and the Gartley model, and in this article we will address other models of harmonics.

Butterfly model in Harmonic analysis

The butterfly model is an important model in the Harmonic analysis. It is an important reversal signal for the price, as the accuracy of the model on the price chart is 80%. Therefore, when the pattern is completed on the chart, the probability of price reversal is high.
The butterfly model is Bryce Gilmore and Larry Bisavento, and Larry is the one who pointed out that the accuracy of the model is up to 80% in his book Fibonacci ratios and model recognition.
​Butterfly Pattern
The butterfly model consists of four waves consisting of five points starting from point X and ending at point D, which is usually reflected in the price after reaching it. 

Create a butterfly model

  • The bearish butterfly pattern consists of five points, XABCD in the form of four waves, as the pattern starts from point X and then drops to point A, forming the first XA, then ascending to point B to complete the second leg, AB, from which the price drops to point C to complete The third wave or wave in the model is BC, and from point C the price rises to point D The completion point of the model to complete the fourth and last leg CD.
  • The pattern of the bullish butterfly is similar to the decline in the number of points and ribs, but it is different in the movement of the price inside, the first side of the model is upward, as the model starts at point X and then climbs to point A to complete the first side of the model XA, To point B to complete the second leg AB, and from point B the price rises until it reaches point C, to complete the third leg BC, and then the price drops until the point of completion of the model point D, to complete the last leg of the CD model.

Fibonacci ratios of the butterfly model in Harmonic analysis

  • 0.382 - 38.2%
  • 0.786 - 78.6%
  • 8886 - 88.6%
  • 1.27 - 127%
  • 1.618 - 161.8%
  • 2.618 - 261.8%

Fibonacci ratios for each point in the butterfly pattern:

  • Point B: comes at the corrective level of 78.6% Fibonacci of the XA leg.
  • Point C: Between the corrective level 38.2% and 88.6% of the AB leg.
  • Point D: the point of completion of the pattern and comes at the correctional level 127% Fibonacci of the leg XA, and if the price continues without being reflected, the price continues to move until it reaches the corrective level 161.8% of the leg XA.

Confirm butterfly model in Harmonic analysis

As we mentioned at the beginning of the lesson that the butterfly model in the Harmonic analysis comes accurately 80%, which raises the probability of success, but needs to be confirmed than other models, as the model can be completed at the corrective level 127% or 161.8% Fibonacci of the leg XA.
Therefore, it is preferable to use other analytical tools beside it to determine the best entry points, and attention should be paid to Japanese candles, because it is important in determining the driving force of the price, whether the buyers are the masters or sellers.

Example of butterfly butterfly model

In the attached picture we see the butterfly pattern on the chart complete and we see the price drop from point A to the 78.6% correction which represents point B, and then again to 38.2% Fibonacci of XA leg to point C, To reach the endpoint D, which represented 161.8% of the XA leg.
An example of a butterfly model
We also noted a positive price break on the Stochastic Momentum, with positive price behavior on Japanese candlesticks which added strength to the pattern, causing a reversal of price and a bounce back after the signals are completed.

Bat model in Harmonic analysis

The model of the bat is similar to the rest of the models used in the harmonic analysis. When the pattern is completed, a signal is indicated that the price is near the reversal and the price of the D point exceeds the point of completion of the pattern.
The bat model in the harmonic analysis consists of four waves of five points starting from point X and ending at point D.
bat Pattern

Configure the Bat pattern

  • The bearish bat pattern consists of five points: XABCD in four waves. The form starts from point X and then drops to point A, forming the first XA, then ascending to point B to complete the second leg, AB, from which the price drops to point C to complete The third wave or wave in the model is BC, and from point C the price rises to point D The completion point of the model to complete the fourth and last leg CD.
  • The pattern of the ascending bat is similar to the drop in the number of points and crosses, but it differs in the price movement inside it. The first part of the pattern is ascending. The pattern starts at point X and then climbs to point A to complete the first wave in the XA form, B to complete the second wave AB, from point B the price rises to the point of C, to complete the third wave BC, and then drop the price until the completion point of the form point D, to complete the last wave of the CD model.

Fibonacci ratios of the Bat model in Harmonic analysis

  • 0.382 - 38.2%
  • 0.50 - 50%
  • 8886 - 88.6%
  • 1.618 - 161.8%
  • 2.618 - 261.8%

Fibonacci ratios for each point in the bat model:

  • Point B: Between 83.2% and 50% Fibonacci of the XA leg.
  • Point C: is between 38.2% and 88.6% Fibonacci of AB leg.
  • Point D: The point of completion of the form comes at 88.6% Fibonacci retracement of the XA leg, and the price reach of this point is a strong reversal signal.

Example of bat model

In the attached chart, we see the completion of the bat model, as the price rose from point A to point B, which represents the corrective 50% Fibonacci retracement of the XA leg, and fell to the 38.2% Fibonacci retracement of AB leg, C of the model, from which the price has risen to reach the point of completion of the D point that came at 88.6% Fibonacci retracement of the XA leg.
​An example of a bat model
The negative form of the Japanese candlestick pattern is also important to confirm the price reversal with the completion of the bat model, including the price falling.
Dear reader, we have completed the third part of the Harmonic analysis series in financial markets, and in the next lessons we will deal with more sophisticated patterns to be familiar with all Harmonic models at the end of the series.

Harmonic analysis in Forex Part II
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