When you choose to trade forex, the key to finding success is often reading patterns. When patterns are discussed, you are going to hear one name mentioned pretty consistently: H.M. Gartley. His harmonic patterns have been famously linked with chart reading and carry as much use today as in 1935 when they were first detailed in his book, Profits in the Stock Market.

Although there are several harmonic patterns of note—see bat, crab, shark, and Gartley patterns, among others—butterfly patterns remain the most prominent. A complete breakdown follows to help you get a full grasp on what they are, how they work, and how to make use of them.

Video Transcript:

Hello, everyone. It's Paul here for ValuTrades. It's the end of my trading day. I've been asked to have a quick chat with you about trading environments, in particular, understanding when your instruments or your asset class, whether it's in a range-bound or a trending environment. Both offer opportunity, but it's important to know which is the correct environment we're in and what is really the right sort of strategies and tactics to use within that environment.

If you like to trade Economic News Events, you will know that Central bank Interest Rate decisions are almost always big movers of the markets.

If you saw our video on trading Triangles and Pennants, you noted that we promised a look at trading Double Tops and Double Bottoms.

Like pennants, Double Tops and Bottoms and Head and Shoulders Patterns represent the battle between buyers and sellers.

One of the most important parts of technical analysis in trading is Chart Patterns. Perhaps the most reliable and easiest to trade of these are triangles and pennants.

These shapes all represent the battle between buyers and sellers and look like the compression of price like a giant spring.  Eventually, the pressure compressing the spring will give out and price will move.

In 13th Century Italy, a mathematician called Leonardo Fibonacci discovered that many elements in our daily lives follow a predictable sequence.

Traders use the same numbers to plot sequential levels of support and resistance following reversals from previous trends.