Harmonic MT4 Indicator - How to trade Harmonic Patterns correctly

Harmonic MT4 Indicator – How to trade Harmonic Patterns correctly

The Harmonic MT4 Indicator is a trading strategy for the Forex market which is based on Fibonacci retracement numbers. The Harmonic pattern on the MT4 is actually a pattern which comprises of 5 similar patterns: the Gartley pattern, the butterfly, the crab and the bat. These patterns all have the characteristic shape listed as follows:

  • The “W” version which is the bearish version. This pattern is preceded by an uptrend and ends with a downward reversal.
  • The “M” version which is the bullish version. This pattern is preceded by a downtrend and ends with an upward reversal.

The pattern is made up of Fibonacci numbers and has five points: X, A, B, C and D. That is why it is sometimes called the XABCD pattern. The pattern starts at point X and ends at point D from where the defining trade is implemented.

The key difference between all the harmonic patterns mentioned above lies in the Fibonacci numbers used in the calculation of points XABCD. Thus some patterns would look like they are standing on the left side (with point D located at a higher horizontal level than point X), and other variations may see the pattern look like it is standing on the right side (with point D at a lower horizontal level than point X).

So what the Harmonic MT4 Indicator does is to look for any of these patterns on a chart, draw them with a colour and present the relevant key areas so that the trader is able to take the trade. The most important factor is that no matter what type of harmonic pattern is traced by the indicator, the trade principles remain the same.

 

Harmonic MT4 Indicator Strategy and Trading Rules

The indicator is applied to the chart. When it appears, it will trace any of the four harmonic patterns in the shape of an “M” shaped Harmonic pattern (buy) or a “W” shaped Harmonic (sell). The pattern ends with an arrow which usually points in the direction where the trader is expected to set the trade.

The trading rules for this pattern as shown by the indicator are as follows:

Harmonic MT4 Indicator – Short Trade Entry Rules

For this short entry example, we will illustrate how to trade the “Bat” version of the harmonic pattern. Notice how the pattern looks like the wings of a bat.

Harmonic MT4 Indicator - Bullish and Bearish Patterns

Harmonic MT4 Indicator – Bullish and Bearish Patterns

The short trade entry signal occurs when the following is seen on the charts:

  • The Harmonic Patterns MT4 Indicator.ex4 draw a bat-shaped Harmonic pattern, which is distinguished from the rest of the pattern by a pre-determined blue colour.
  • The starting point of the downward reversal is at point D, which is a 0.886 retracement of line XA. The trader should enter a SHORT trade at the open of the next candle.
Opening a Short Trade with the Harmonic MT4 Indicator

Opening a Short Trade with the Harmonic MT4 Indicator

A close look at the chart above shows that the indicator has drawn a blue outline around the characteristic “W” shaped bat Harmonic pattern. Point D is lower than X and point C is higher than A.

Stop Loss and Take Profit Settings

The Stop Loss is set a few pips above the high of the candle which marks the end of the Harmonic pattern at point D.

The Take Profit point should be set at any point along the price path, guided by the nearest support and should be at least two times the stop loss distance in pips.

Harmonic MT4 Indicator Long Entry Trading Rules

For the long trade example, we look at another type of harmonic pattern, which is bullish Butterfly pattern. The butterfly is different from the bat pattern, as it aims to pick up new highs for a short trade and new lows for a long trade. Hence, point D is always at a lower level than point X and point C is always lower than A. Point B must always be a 78.6 retracement of the line which runs from X to A.

The long trade entry signal occurs when the following setup is seen on the charts:

  • The Harmonic MT4 Indicator draw an “M” shaped butterfly harmonic pattern, which is distinguished from the rest of the pattern by a blue colour.
  • Once the candle marking the end of the Harmonic pattern has closed (buy zone circled on chart below), the trader should enter a LONG trade at the open of the next candle.
Harmonic MT4 Indicator - Long Trade Entry

Harmonic MT4 Indicator – Long Trade Entry

Stop Loss and Take Profit Settings

The Stop Loss is set a few pips below the lowest price of the candle on which the red box at point D is encircling. The Take Profit point should be set at a point where there is a prior resistance, and should be at least two times the distance of the stop loss in pips.

Precautions when trading with the Harmonic MT4 Indicator

The trader’s only precaution should be to allow the pattern to form fully, and to allow the price action complete its move to point D before executing the trades. It is not necessary to master the Fibonacci ratios on which the pattern is based. Trades can also be protected with the use of a Trailing Stop, once the trade has significantly moved into profit territory.

Harmonic MT4 Indicator – Recommended Time Frames

Technically speaking, you can use this MT4 indicator for all time frames. However, the shorter the time frame, you will see more fluctuation and possibly more whipsaw which may cause small losses that can eat up your portfolio quickly. We recommend that you use higher time frames like the 4H for better consistency.


How to trade with Harmonic Patterns Video Tutorial


How to trade with Harmonic Patterns Video Tutorial


Harmonic MT4 Indicator Download

We have provided this powerful trend trading indicator to you at no cost. We humbly request for your help to spread the word by sharing on one of the social platforms below. To unlock the download link, you just need to share this page to help us achieve our goal of helping more traders out there.

Leave us a comment below to let us know your thoughts on this indicator. If you like this indicator, you might like see other indicators that we have carefully selected that will help you in your trading journey.

And if you can, you really should invest in a proven MT4 Expert Advisor to help you generate some profit on full autopilot. We highly recommend this powerful MT4 Expert Advisor.

Visit our Free MT4 Indicator Download page. We hope you have enjoyed this post as much as we have creating it. Good luck and thank you for your readership.


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