Now let’s talk about how harmonic patterns could be the part of classical patterns. Let’s start from the same 3-Drives. Very often it could take form of Wedge or Triangle pattern. Obvious that different kind of Butterflies as on chart #5 and AB=CD’s also are parts of it: Chart #6 | 60-min EUR/USD 3-Drives Sell pattern as bearish Wedge Second important moment that 3-Drives pattern as a rule is confirmed by the trend indicator. In our example it’s a MACD. This confirmation looks like trend shifting at around the third drive completion point. See - market establishes new high at third drive, but the trend has turned and holds bearish. Later we will discuss such term as “divergence” – this is different move in price and indicator. For instance price establishes new highs, but MACD does not follow it and second top of oscillator is lower than previous one. This phenomenon you can see very often at third drive point. Sometimes targets of harmonic patterns could coincide with Fib extensions or retracement levels, Pivot points, classical support/resistance lines, etc. You have to combine all this stuff. Because it allows you to watch at situation from all points of view and either to get more confidence in potential trade or decide to skip it. Pipruit: Hold on, Sir. Looks like I’ve got it. You want to say that applying harmonic approach to classical patterns we can trade classical ones more delicately and effectively, right? For instance, in classical approach, to trading a wedge, we need difficult technique of confirmation, applying trend, some reversal patterns or entering after breakout. But applying harmonic patterns we can, first, trade the whole wedge from the beginning to the end as it was with side-by-side butterflies, second – enter in the direction of breakout almost at spot point due completion of 3-Drives pattern! Commander in Pips: You’re very smart guy, but jokes aside – you’re absolutely right. I’m glad that you understand that. Here is the last example for today – reverse Head & Shoulders pattern that we’ve discussed already. Applying of harmonic patterns adds many colors to the trading process: Chart #7 | Weekly JPY/USD H&S pattern in a view of harmonic patterns First of all, you will be able to enter long right at the bottom of the head, since it was the target as 1.618 Butterfly “Buy” as inner 1.618 AB=CD. Later, when formation of H&S has become obvious you have another chance with Gartley “222”. Also take a note that very often right at the top/bottom of the head Butterfly could form. This usually looks like head consist of two smaller tops/bottoms and second one is higher/lower than the first one. This kind of compounding and analysis definitely will give you such possibilities for trading that you can’t get using only the classical approach - and just awaiting of neckline breakout. Pipruit: Cool! Also it seems that you’ve missed the Bat pattern that is the left shoulder. So we can sell even prior Butterfly “Buy” pattern: Chart #8 Weekly JPY/USD H&S pattern in a view of harmonic patterns Commander in Pips: Oh... Now I see that you really do understand me. Well done! P.S. This lesson was written by Sive Morten, who has been working for a large European Bank since April of 2000, and is currently a supervisor of the bank's risk assessment department. Sive's knowledge of forex market and banking industry is vast and quite complete. If you have any specific questions about forex, banking industry, or any other financial instruments, please post them on the next page and Sive should answer soon. Note: FPA ranks are earned in the battles against scam, not in the classroom.