Crypto Academy / S4W2 - Homework position for @lenonmc21 by @mayureshpandit

Harmonic trading is the trading technique in which traders divided the chart form into the waves form. It can be smaller or larger waves. To creates the wave line traders can use Fibonacci numbers.

For those who don’t know about the Fibonacci numbers for that people, I will explain in simple words. The Fibonacci number is the sequence of numbers in which we will know the next number by adding the previous two numbers. For example, I will give the Fibonacci example in the below line.

0,1,1,2,3,5,8,13 and so on

The main advantage of Harmonic trading is it will help you in the future projections of the market. Is the market going up or down will be easy to predict using harmonic patterns. It is more reliable and repetitively you will fount this pattern in the chart. There is no one to predict the bottom of the market but using the harmonic pattern it will be easy to predict the market of the bottom if all parameters are set properly. There is a better risk-reward ratio in Harmonic trading and it works across all financial instrument markets. Like you can trade in the shares, commodities or in the cryptocurrency and so on. It was part of the technical analysis but with this, you should also have to know the fundamental knowledge of that particular financial asset.

In the world, everything has its disadvantage we have to decide that how many disadvantages we are able to afford. Harmonic patterns are mainly a disadvantage is its a little bit complex to understand as this is just patterns of “M” or “W” but in that, we are calculating the levels of the market using the Fibonacci numbers and patterns also makes some time confusion So this is some disadvantage of Harmonic trading.

Some of the popular harmonic trading patterns are listed below:-

1. The Gartley pattern
2. The BAT pattern
3. The ABCD pattern
4. The butterfly pattern
5. The deep crab pattern
6. The crab pattern
7. The shark pattern

Initially, it is developed by H.M. Gartley and In that time many people were confused about where to buy and where to sell but over time many researchers give the contribution in these patterns and According to my view, Carney has explained this pattern very nicely in their book “Harmonic Trading”.

In the AB= CD pattern, there are two types bullish and bearish which helps you to predict the price that is about to change direction. It is much easier to identify into the charts and it has fewer requirements. Let’s take a look at what is bearish AB=CD and bullish AB=CD patterns.

Bullish AB=CD

It helped to identify the upward movement of the market which is also known as the bullish movement. This pattern you will see throughout the day in any time frame. As you observed the chart you will see these patterns many times in the day.

To form the bullish AB=CD pattern you need to follow the below steps. I am using the trading view of Binance where you can found the tool to draw the AB=CD pattern

To draw a bullish AB=CD pattern you should need to pick the market top as A point and B point should be the market low.

BC wave retraces about 61.8 or 78.6% of the AB swing move.

CD Swing move extends to either 127.2% or 161.8 % of the AB wave.

Bearish AB = CD Pattern

This pattern helps us to know the downward movement of the market and to draw this pattern we will use the similar 4 points ABCD but a little bit different is there to draw this pattern. Let's draw the bearish AB=CD pattern.

Firstly, we need to pick the A point for that we should pick the lowest price of the market, and B is the high price point.

C usually retraces to 61.8 % or 78.6 % of AB.

CD must be 127.2% or 161.8% or AB or of CD

As we studied the AB= CD pattern according to that the criteria of entry and exit in the trades are as follows.

Entry Criteria According to AB= CD bullish pattern (buy order):-

If A, B, C, D is in Downtrend and you found that D is between 127.2% or 161.8% of the Fibonacci Retracements, then you have to wait until a bull candle gets appeared. Once it gets appeared, he shall place a buy order, or if you want to be safer then you should wait until the price of the asset will break the B point once it breaks then you should place the buy order.

Exit Criteria According to AB= CD bullish pattern:-

For exit, criteria mean your target of the trade is around the C point that should be safer and less risky. And our stop loss is the D point as every trade needs a stop loss we Should keep the D point as stop loss

Entry Criteria According to AB= CD bearish pattern(sell order) :-

If A, B, C, D is in an Uptrend and you found that D is between 127.2% or 161.8% of the Fibonacci Retracements, then you have to wait until a bear candle gets appeared. Once it gets appeared, you shall place a sell order, or if you want safer trade then you should wait until the B point price is broken by the financial asset. Once you see that the Level Of B is breaking then you should immediately place the sell order.

Exit Criteria According to AB= CD bearish pattern(sell order) :-

The target of the sell order is you should keep around the point C level and if you place the order at level B then you should keep the stop loss as a D point.

Bullish AB=CD Pattern (uptrend)

The analysis has been done for BTC/USDT in a 15-minute time frame candle chart.

As you saw in the above image Fibonacci retracement has been drawn for AB and found C is laying between 61.8% and 78.6% of the Fibonacci Retracements and found D is laying between 127.2% and 161.8% of the Fibonacci Retracements. it clearly shows that this is the bullish AB=CD Pattern. This means you can place a buy order as per the criteria mentioned in the previous question.

Bearish AB=CD Pattern (downtrend)

The analysis has been done for BNB/USDT in a 15-minute time frame candle chart.

As you saw in the above image Fibonacci retracement is drawn for AB and C is found laying between 61.8% and 78.6% of the Fibonacci Retracements and D is laying between 127.2% and 161.8% of the Fibonacci Retracements. It clearly shows that this is a bearish AB=CD pattern. This means you can place a sell order as per the criteria mentioned in the previous question.