XABCD Pattern – A Complete Guide

Harmonic XABCD Pattern is a chart pattern used in technical analysis to predict potential reversal zones (PRZ) in the financial market. The Pattern has different variations. However, each Pattern consists of 4 legs starting from point X and is based on Fibonacci numbers and ratios. These patterns are based on the belief that market movements are not random but instead follow specific patterns and ratios. Harmonic patterns are some of the most reliable tools in the financial markets. They can help traders and investors increase precision, enhance risk management and improve trade timing by identifying exact PRZs.

What is PRZ

PRZ, or Potential reversal zone, is the D point of the Harmonic XABCD pattern. As the name suggests, PRZ is the zone where the price has a high probability of reversing. Knowing PRZ helps traders and investors make informed decisions and better time their trades. It should be noted that PRZs do not guarantee reversals and should be used in conjunction with other technical tools and indicators.

Different Types of Harmonic Patterns 

Gartley Pattern 

The Gartley Pattern is named after Mr.H.M. Gartley, who first described it in his book “Profits in the Stock Market.” The Gartley  XABCD Pattern has two versions, Bullish Gartley and Bearish Gartley. 

Here is an example of the Perfect Gartley Pattern.

A perfect Gartley pattern has the following characteristics.

1. Accurate 0.618 B point retracement of the XA leg.
2. Exact 0.786 D-point retracement of the XA leg in the PRZ.
3. Mandatory 1.618 BC projection.
4. Perfect and Equivalent Ab=CD Pattern (0.618/1.618) that has distinct symmetry
5. C point at the 0.618 Fibonacci Retracement level.

Crab Pattern

The Crab Pattern is another reliable and popular 5-point harmonic pattern. The crab pattern was discovered by Scott Carney in 2000 and has been actively used by technical analysts in the financial market ever since. Like most XABCD patterns, crab patterns have a bearish and bullish variation.

 Here is an example of a Crab pattern 

Characteristics of Crab Pattern 

1.  B point, 0.618 Retracement that is XA less.
2.  Extreme BC projections that are typically 2.618, 3.14, or 3.618.
3.  Alternative 1.27 or 1.618 the AB=CD pattern is required.
4.  1.618 The XA projection is the limit of the structure
5. C point, within a range of 0.382 and 0.886

Bat Pattern

The Bat is one of the most common and reliable Harmonic patterns. It gets its name from its shape. The Bat pattern was founded by Scott Carney in the year of 2001 and has been used in the financial market ever since. 

Example of a perfect Bullish bat Pattern 

Characteristics of Bat Pattern 

1.  B point less than 0.618 Retracement of XA, preferably a significant 50 percent or
2. 38.2% retracement.
3.  BC projections must be at least 1.618.
4. The Pattern AB=CD is typically extended.
5.  0.886 Retracement of XA Leg
6.  C point that ranges between 0.382 and 0.886

The Butterfly pattern

The Butterfly pattern is another type of Harmonic XABCD pattern that gets its name from its shape. Bryce Gilmore founded the butterfly pattern. The Pattern comprises four price swings, labeled X, A, B, and C, which form distinct harmonic ratios. 

Example of a butterfly pattern 

Characterstics of an ideal butterfly pattern 

1.  Exact 78.6 percent B point Retracement of XA leg.
2. BC projections must have a minimum of 1.618.
3.  AB=CD pattern is the minimum requirement. However, the alternative 1.27 AB=CD
4.   is more common.
5.  1.27 XA projection is the most critical value in the Potential Reversal Zone (PRZ).
6. There is no 1.618 projection of XA.
7.  C point between 0.382-0.886 Retracement.

The Deep Crab Pattern

The Deep Crab Pattern is a variation of the Crab Pattern. The Pattern is considered a bearish reversal pattern and is used by traders to identify potential short-selling opportunities. The Deep Crab Pattern is characterized by a deeper C-D leg compared to the standard Crab Pattern, which results in a more powerful reversal signal.

Example of a Deep Crab pattern 

Deep Crab Deep Crab is similar to the original Crab pattern. It uses a 1.618 projection of XA to define the primary level of the Potential Reversal Zone (PRZ). However, The difference is evident at the B point, which is required to be an 0.886 retracement. The Deep Crab XABCD pattern usually possesses a B point that is beyond the 0.886 level but does not violate point X.

Why are Harmonic patterns popular?

Harmonic patterns are popular among traders due to their high degree of accuracy in predicting trend reversals in the market. These patterns are built on the notion that the market moves in recognizable patterns and that prices repeat themselves over time. That means the exact Pattern may repeatedly occur within a single market cycle, and traders can use these patterns to predict future price movements and make possible trades.

Understanding harmonic patterns, such as ABCD or  XABCD patterns, provides traders additional confirmation and compliments the traditional Technical Analysis setups. Furthermore, Harmonic Patterns consider the market’s internal structure, which is critical to understanding the market’s behavior and making informed decisions. 

Is Harmonic XABCD pattern reliable?

Harmonic Patterns are considered very reliable and are actively used by many successful traders. However, the accuracy of the Pattern depends on the trading style and sense of the trader. Just like any other trading strategy or tool, Harmonic Patterns are not 100% accurate, which is why it is recommended to use these patterns in conjunction with other tools.

One of the bugs with Harmonic patterns is overlapping. For example, if you are using the XABCD pattern. There is a possibility of price structure fulfilling requirements of multiple kinds of XABCD patterns, Which can be confusing and overwhelming for traders. This is why we have made a Harmonic XABCD Calculator for you. The calculator will help you filter the noise and calculate accurate potential reversal zones.

How to start trading with harmonic patterns

Here are some tips on how to start trading with XABCD pattern

1. Study and understand the different kinds of harmonic patterns, such as Gartley, Butterfly, and Crab patterns.
2. Analyze yourself with the underlying market conditions, such as trend, momentum, and volatility that can affect the reliability of harmonic patterns.
3. Use reliable and professional charting software to identify and draw XABCD patterns.
4. Backtest the patterns on historical data to analyze their accuracy and potential for profit.
5. Develop strategies that include entry and exit points, position size, and risk management techniques.
6. Paper trade and backtest your strategies.
7. Regularly monitor and evaluate the performance of your strategies, and make adjustments if needed.