Harmonic patterns form a complex type of pattern in a trading chart. They use Fibonacci levels along with geometric price actions. Named after its founder, harmonic trading was introduced back in 1932. Harold McKinley Gartley constructed a new pattern that was further described in one of his popular books about stock trading.
The main reason to use this complex tool is the ability to identify a PRZ (potential reverse zone) with a high probability, minimize the risk of potential loss and eventually enter the trade. As stated earlier, the strategy is based on Fibonacci numbers and patterns to locate the potential occurrence of the price turning point.
Why Harmonic Trading Is Important?
The main reason to use harmonic patterns is the opportunity to foresee the price reversal. Patterns help to predict price movement thanks to the difference in magnitude, length, and other crucial parameters day traders use to make accurate forecasts. Harmonic trading applies to different types of assets that include stocks, currency pairs, options, etc.
What's more, harmonic patterns have proved to be a very precise instrument when it comes to identifying price reversal. This is due to their ability to locate and characterize the most specific price movements.