Hi Folks,
First of all, let me apologize for not updating the blog in the last week, since I was away.
We may have missed some harmonic patterns in the process, but lets get on.

I wanted to discuss a harmonic pattern in the process on the 4hr Eur/Gbp, which is in response to a query from one of the traders.

If we look at this chart, we could be looking at the completion of a bearish Gartley pattern. The fib retracements have been met quite accurately (as shown on the chart) and one would expect price to move towards the downside.

The second chart shows the expected price objectives that are expected.
The initial price target would be the 61.8 fib retracement of the C-D wave & if price breaks this level, then we can further expect a move to the 127.2 / 161.8 fib projection of the wave A-D.

So far so good.

But if we have a look at this chart, then we can identify a possible bearish Bat pattern in the process….in the same price movement.

Now which pattern would be the right one?
And one needs to identify it correctly since the expected price movements would be in opposite directions.
If the smaller Gartley is valid, then we expect price to resume the downtrend with immediate effect.
If the larger Bat is valid, then we expect price to move to the upside to complete the last wave C-D of this pattern.

Let’s take some points into consideration.
First and foremost, the fib ratios plotted on the larger pattern would be more effective, since they are plotted on the pivot swing high & pivot swing low.
This simply means that the fibs in chart.3 are plotted on bars from where price has turned around.
In comparison, the fibs plotted on chart.1 are not on pivot bars.
The X on chart.1 (the bearish Gartley) is a pullback in the entire down wave & not a separate wave.
Plus the D of the smaller Gartley (chart.1) did not confirm accurately to the parameters of the Harmonic – D did not form at the fib projection 127.2 of wave C-D.
Hence one would give more weight age to the larger pattern.

Now this does not mean that we immediately go long & look to trade the last up leg of the Bat,
We simply follow the “If-Then” procedure.
We know that price does respect fib levels, so looking at the expected targets of the smaller Gartley we could expect a down move to the 61.8 of C-D.
If price breaks that, then we think short.
For expected longs, we can simply plot a trend line along the highs of X-D and we think long if price breaks this trend line.
Till the time price is within these levels, we are in a No-trade Zone, as we can see in this chart.

We wait for price to tell us where its going & till then we look at some other currencies….or go for a swim or a round of golf -J
Sunil.