Harmonic Patterns are specific structures based on very precise Fibonacci retracement and extension levels. Significant reversals are often generated with Harmonic Patterns.
Bitcoin’s Daily Chart
The chart above shows one of Scott Carney’s Patterns, the Deep Crab. The Deep Crab is a 5-pint extension – but a very deep (pun intended) extension of the XA leg. The psychological component of the price action within this pattern is potent. Extension patterns are any moves where prices seem to move beyond the norm. Think of overbought and oversold conditions on an oscillator like the RSI (Relative Strength Index) or the TSI (True Strength Indicator). More than one trader has attempted to short an overbought market or buy into an oversold market. Chances are, that when you tried either of these scenarios, you were an unfortunate participant in the development of a Deep Crab Pattern. Scott Carney wrote that this pattern represented some of the fastest and most profitable patters in all of his harmonic patterns. This is something that I can attest to. First, the Deep Crab is a relatively rare pattern in my trading (I don’t often screen for it, but I can tell if it’s there) and not one single time has the Deep Crab not created substantial profit. People say that China was the reason for the monstrous +40% drive up in late October. I would submit that the combination of three Gann inner year cycles and the presence of this rare buy powerful Harmonic Pattern were the reason.
In trading, the news is a thing that novice traders and investors look for to wrap their arms around for comfort. When something happens, the masses seem to search engines or social media for a reason. When the fact is, turns in markets are easily identified days, weeks and months before the turn – regardless of the news or lack of news.
Bitcoin’s 4-hour Chart.
The chart above shows the same pattern, but on a faster time frame – the 4-hour chart. We use the same Fibonacci ratios, extensions, and retracements that we used in the daily timeframe. And we can see the same very overextended conditions with price action. Something that many people may not know is that there is a large segment of well-seasoned and professional traders who utilize a combination of Order Flow Management and Harmonic Patterns to move the market where they want it to go. Self-fulfilling prophecy or not, well-capitalized individuals can move a market to a critical harmonic zone to capitalize on the psychological upheaval that is wrought from their book strategies (some people call it manipulation). Now, short time frames are not nearly as accurate as daily, weekly or monthly time frames, but the principals here should be viewed the same. A Bullish Deep Crab has completed on the 4-hour chart. There is a bullish hammer candlestick indicating a probable swing bottom at the close of the prior candle (8774.52). The current 4-hour candle current has an end above the previous candlesticks open and close. There is another bullish signal in here with a three candlestick pattern called a pivot. A bullish pivot pattern occurs when the middle candlestick has a lower low and a lower high than the candlesticks to its right and left. Again: this doesn’t mean this market will reverse from this level to shoot towards the moon, but the setup is exceptionally favorable for that event if it does occur.