XABCD pattern is considered to be the most powerful harmonic pattern. With its four-legged pattern, it comprises of different variants i.e. Gartley, Butterfly, Crab and Bat). Harold McKinley Gartley is the pioneer who created this patter. In the contemporary world, many analysts utilize this pattern to highlight numerous five point chart patterns. This exemplary trading pattern is also to be known as “The Art of Trading with Low Risks.” Basically, the XABCD points constitute four distinct legs which together form the chart patterns. Primarily, XA, AB, BC and CD are the four legs. In terms of increasing or decreasing trends of prices, the XABCD Harmonic Pattern showcases a significant low and high. Likewise, XA, AB, BC and CD are known for representing the changing trends and price movements.
Four Most Popular Patterns
The four main XABCD patterns can either be bearish or bullish.
The Gartley Pattern
This unique pattern is formed whenever the price movement shows an uptrend or a downtrend. However, it starts to show indications of correction. Most importantly, this specific pattern is made up of ABCD pattern bearish or bullish.
Qualities of Gartley Pattern
There are some profound qualities related to Gartley Pattern which is listed below.
- The AB movement must be 61.8 percent retracement of the XA.
- Also, the BC movement needs to be 38.2 percent retracement of AB
- It is important to note that if BC (38.2 percent) retracement occurs, and then CD has to move 127.2 percent of BC. As a result, if BC is 88.6 percent, the CD should be expanded 161.8 percent that of BC.
- The CD movement must be 78.6 percent retracement of XA.
The Butterfly Pattern
This pattern was made by Bryce Gilmore. And, it can be perfectly defined as the 78.6 percent Fibonacci retracement of AB and that of XA.
Qualities of Butterfly Pattern
- As far as the length of AB is considered, it must be 78.6 percent retracement of XA.
- Second quality entails the length of BC. If it is 38.2 percent or 88.6 percent, then move from AB.
- Thirdly, it is to be noticed that if retracement BC 38.2 of AB, then CD must be 161.8 percent that of BC. Which means, that if the BC length is 88.6 percent, then the length of CD needs to be 261.8 percent that of BC.
- The CD length can either be 127 percent or 161.8 percent of XA.
The Crab pattern
Considering the uniqueness of harmonic pattern in trading, Scott Carney, back in 2000, coined the new pattern known as the Crab. According to the analytical viewpoint of Scott, he affirmed that the crab pattern is one of the most accurate one among all others.
Attributes of the Crab pattern
One rare quality which makes this pattern outstand others is its high risk/reward ratio. It’s because a trader can put a highly tight stop-loss position. The other considerable characteristics of this pattern have been mentioned below.
- The AB length can either be 38.2 percent or 61.8 percent retracement of the XA.
- Secondly, the length of BC has to be 38.2 percent or 88.6 percent retracement as compared to the length of AB.
- Lastly, the length of CD must be 161.8 percent of the length of XA.
The Bat Pattern
The second most renowned contribution was by Scott Carney was in 2001. As he well believed in the powerful XABCD Harmonic Pattern, he found another one and named it as bat.
Characteristics of the Bat Pattern
- In this particular pattern, the AB length ought to be 38.2 percent or 50 percent retracement of XA.
- Secondly, this pattern characterizes that BC can be 38.2 percent or 88.6 percent retracement of the AB.
- Also, the CD length should be 88.6 percent retracement of XA.
Traders’ using the XABCD Pattern
As this harmonic pattern offers the traders with trends such as retracement, extensions or x-point patterns, traders can locate them using approximately 11 ratios in almost each patter. Performing this task alone can be lethargic and burdensome. Therefore, it is wisely recommended to use the tools available for measuring. Traders can sought to audio alert systems in order to save their time locating the patterns and analyzing them afterwards.
Significance of harmonic trading
In the Forex market, it is vital to use harmonic patterns. As the name itself indicates that this phenomenon is harmonic in nature. Likewise, it can be stated that they can be divided into smaller or larger waves that would predict the price direction aptly. This trading relies solely on Fibonacci numbers. Afterwards, technical indicators are created from Fibonacci numbers.
Success rate of Harmonic Pattern
The success rate of harmonic pattern is exceptionally high when compared to other price patterns. In addition to that, it works quite well in almost all the international financial markets such as
Potential Reversal Zone (PRZ)
It is the specialty of each of the four patterns that it provides the technical traders with Potential Reversal Zone (PRZ). The exact price may not be mentioned. Moreover, it can measure fine-tune entries. As far as stop losses are concerned, they can also be placed outside the furthest projection.
Harmonic Pattern – The most precise way
XABCD Harmonic Pattern is said to be the most precise and mathematical way to do trade. However, at the same time, this powerful pattern system requires a lot of patience, practice and above all, a thorough study to master this art. In this perspective, the price movements which do not align with the proper pattern measurement somehow fail to keep the pattern validated. This can also lead the traders astray.
To conclude, it is pertinent to know the importance of XABCD harmonic pattern. Undoubtedly, this trading pattern plays a paramount role in defining the uptrend and downtrends of international financial markets. May it be Forex or Crypto, the XABCD pattern holds a significant eminence in the trading field. Besides this, if a trader aspires to utilize these patterns in the best of form, then he must have a wide study and knowledge regarding this pattern. If not, he may not be able to excel in trade.