Harmonics Module 2 PDF

Harmonic Patterns
MODULE 2 HARMONIC CHORD AB=CD
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Wavy Tunnel - Introduction
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Harmonics - Introduction
Welcome to the Harmonic Patterns Training Module 2
Over 30 years trading Forex, Futures and Options using Elliott Wave Analysis
The Wavy Tunnel is one of the best Fibonacci and Elliott Wave based Trading Systems
This System, when combined with Harmonics Patterns, creates very precise high probability
trade setups
This training program will combine Elliott Wave and Harmonic Setups and tie it all together with
the Wavy Tunnel PLUS

Sections
The Course Outline
Section I: Elliott Wave Series

Elliott Wave Section II: Wavy Tunnel PLUS
Ultimate Section III: Fibonacci Primer

Section IV: Harmonic Patterns

Modules
Elliott Wave Ultimate Course: Section IV
Module 1: Fibonacci Overture

Module 2: Harmonic Chord AB=CD
Harmonic Patterns:
Module 3: The Retracement Pattern Quartet
Become a Conductor! Module 4: The Extension Pattern Suite
Module 5: Wavy Tunnel PLUS Orchestra
Module 6: Case Study Triad

Welcome to Module 2
Harmonic Patterns: Harmonic Chord AB=CD
 Four Precise Swing Moves

Module 2  Ideal AB=CD
Learning Objects  XA Convergence
 Plotting AB=CD
 Alternate AB=CD
 Look Left for Confirmation
 Time and Price Symmetry

Introduction
Objectives
1. Understand the Background behind AB=CD Pattern

2. Revisit Fibonacci in the Context of the AB=CD Converging with a Key FIBO Level
of Prior Swing Move
3. Learn Details for plotting the AB=CD Ideal and Alternate Patterns
4. Internalize Looking Left for Confirmation and Begin to Recognize Time and
Price Symmetry
5. Begin picturing yourself Riding the Waves and Cashing in on Profits using the
Wavy Tunnel with Harmonics

Harmonic System of Trading
Harmonic Patterns Have 4 Precise Swings

1. System of trading with 4 precise swings – with a high
probability reversal price zone
2. Once 3 prices are measured, the 4th price can be X

projected
D
3. Rare to find 3 prices that are perfectly related by B
Fibonacci relationships - Convergence Zone is projected
4. Convergence Zone at stiff support or resistance formed

by previous price action
C
A

Harmonic Chord AB=CD
AB=CD Simple Pattern
 The AB=CD is a 4-point pattern

 You will begin to see this pattern in every market
and time frame A
 Basic foundation for all the patterns we will study
together including the Gartley, the Butterfly, the
C
Crab and the Three Drives
 With each pattern we will explain the structure first,
and then delve into how the pattern conforms to
one or more of the 6 Wavy Tunnel Setups B
 Hence, the name “Elliott Wave Ultimate” D

AB=CD Simple Pattern
 Some traders use the AB=CD  Projected from XA,

pattern as a trading system on AB and BC swings
its own A
C  Forms Convergence
 When looking at a chart, you
will find the A B and C points Zone
in relation to a previous X
swing
 AB=CD is a 4-point pattern B
D
Previous X Swing

Bullish AB=CD Patterns

Three Legs in this Pattern:
 AB Leg – price sells off from Point A to B BUY at Point D
 BC Leg - Point C retraces AB Leg between
38.2% and 88.6%
 Point D is projected once AB and BC form as
A
 D Projected
a BC extension  Convergence
 CD Leg - CD must equal AB in length (unless C
CD extends)
Zone
B
D

Bullish AB=CD Patterns
A
 D Projected
C
 Convergence
Zone
• C is approximately 61.8% of AB B
• CD equals AB in length
• Notice how price rallies off Point D
D
BUY at Point D
Download MotiveWave charts for 14-day trial at: bit.ly/EWcharts www.fxtradersedge.com ©2013 FX Trader’s EDGE TM All Rights Reserved
Bearish AB=CD Patterns

Three Legs in this Pattern:  D Projected
 AB Leg – price moves up from Point A to B  Convergence
 BC Leg - Point C retraces AB Leg between Zone
38.2% and 88.6% D
 Point D is projected once AB and BC form as B
a BC extension
• CD Leg - CD must equal AB in length (unless
CD extends)
Description:
A C
 The Market traded rallies in an uptrend and
then retraces SELL at Point D
 It then rallies again, forming an up sloping
parallel channel

AB=CD Pattern Variations
 Almost half the time AB=CD where the

pattern is symmetrical
 It is preferable that AB=CD is also equal in
the time it takes to complete the pattern
D
 Alternate: When CD extends, it usually
extends from 1.272 to 1.618 to 2.618 times B
the length of AB (is this starting to sound
familiar with ABC Elliott Wave Patterns?
 CD can have a slope greater than or less
C
than AB A
The Bearish AB=CD

 In Elliott Wave Analysis, we say that the D

Equality Target is the minimum target
2.0AB=CD
where AB=CD
1.618AB=CD
 Very often the Wave C is longer than Wave
1.272AB=CD
A (CD > AB)
 If CD is 1.272, 2.0 or 1.618 times the length AB=CD
of AB, this is still a valid Harmonic Pattern
and signal B
C
A The Alternate AB < CD

 In Elliott Wave Analysis, we say that the

Equality Target is the minimum target
where AB=CD D
AB=CD
 Sometimes, Wave C is shorter than Wave A
(CD < AB), although not too common B
 If CD is .786 or .618 times the length of AB,
this is still a valid Harmonic Pattern and
signal
C
A
The Alternate AB > CD

AB=CD Alignment of Fibonacci Ratios
Point C FIBO BC Extension

Retracement for Point D
.382 (1/.382) = 2.618 D

B
.50 2.0
.618 1.618
.707 1.414
.786 1.272 C
A
.886 1.129 or 1.13
Point C Retracement is a
way to project Point D

 The reciprocal of Point C Retracement is used

to project Point D
 HOWEVER, even though the BC Extension is

critical to complete this structure, where AB = D
CD is even more critical B
 Using both together provides a Target
Zone for the completion of CD
C
A
Point C Retracement is a
way to project Point D

Example of a 38.2% Point C Retracement
A
 If Point C is 38.2% of AB the BC
extension or projection is
C
261.8% based on the reciprocal
relationship
 The length of AB usually equals

the length of CD at that price B
D

AB=CD Alignment of Fibonacci Ratios – Bearish
X
D
• Point C is approximately
C 70% retracement of AB
• Based on Reciprocal
A relationships, Red FIBO at
Point D is 141.0% of BC
AB=CD Alignment of Fibonacci Ratios - Bullish
A
C
B
D • Point C is approximately 61.8%
retracement of AB
• Based on Reciprocal relationships,
Red FIBO at Point D is 161.8% of BC
X
Bullish XA with Fibonacci Convergence
NEW Convergence Layer: AB=CD Fibonacci Bullish Convergence

Retracement of XA Leg
 Point X starts the swing move up which A
ends at A C
 At Point A the AB=CD Pattern begins
 Once D has been projected, check to see if
it converges with a Fibonacci retracement
of the XA swing
 The area around Point D is considered
B
heavy support when there is FIBO D
convergence at that price level X
.382/.50/.618/.786/.886

Bullish XA Convergence
• AB = CD A
• AB=CD falls within XA leg C
• Blue FIBO line 61.8% XA
B
D
Bearish XA with Fibonacci Convergence
NEW Convergence Layer: AB=CD Fibonacci

Retracement of XA Leg .382/.50/.618/.786/.886
 Point X starts the swing move down which X
ends at A
 At Point A the AB=CD Pattern begins D
 Once D has been projected, check to see B
if it converges with a Fibonacci
retracement of the XA swing
 The area around Point D is considered
heavy resistance when there is FIBO
convergence at that price level
A C
Bearish Convergence

Bearish XA Convergence
 The AB=CD pattern looks like Key FIBO level of

lightening where the AB leg is equal X
to the CD leg in price XA Swing
 It is preferable that point C be a D
common Fibonacci % of the AB leg B
 D should be at or near a FIBO
retracement of XA
C
A
The Bearish AB=CD

Bearish XA Convergence
X
D
• AB = CD
• AB=CD falls within XA leg C
• Blue FIBO line is 78.6% of XA
A
Plotting AB=CD Patterns

 Find a three point swing that has completed
and is moving down or up beginning a fourth 38.2– 88.6 %
swing
 Label the large swing XA
 Label the second swing AB
 Label the third swing BC
Charting an AB=CD

Plotting AB=CD Patterns

 In an AB=CD Pattern the Point C retracement is
the important Fibonacci percentage and the 38.2– 88.6 %
Point B is not because we use the Point C
retracement to get the reciprocal FIBO value to
Extend or Project BC to Target Point D
 The Point B is very important in the BAT, CRAB,
BUTTERFLY and GARTLEY Harmonic Patterns
Charting an AB=CD

Continuation Pattern for Bullish AB=CD
• Relax the XA assumption (important for other
Harmonic Patterns but not a requirement for
AB=CD)
• For AB=CD measure Point C using FIBO Tool
• For AB=CD you want Point C retracement to be
either .382, .50, .618, .786 or .886
• Label and draw out the swings with lines
Plotting AB=CD Patterns – 2 Steps

1. Once Point C is plotted and the AB and BC
legs have been drawn measure price and
time of the AB swing and add it to Point C to
project Point D (an equal and parallel line will
take into account price and time)
 This will give you an AB = CD equivalent in
time and price making a nice symmetrical
looking Zig zag
2. Measure Point C retracement of AB leg and
take the reciprocal relationship to target
Point D Projecting the AB=CD

Plotting Bullish AB=CD Patterns
1. Measure price and time

of AB and add it to C to
project D with a parallel
line
2. Point C is a 78.6%
retracement of AB. Based
on Reciprocal
relationships, Point D is
projected at 127.2% of BC
A ZONE IS FORMED
Plotting Bullish AB=CD Patterns
Projecting the AB=CD
A ZONE IS FORMED
1. Measure price and time of AB and add it to C to project D

with a parallel line
2. Point C is a 61.8% retracement of AB. Based on Reciprocal
relationships, Point D is projected at 161.8% of BC
AB=CD FIBO Retracements and Corresponding Extensions

AB=CD Point BC
Pattern C EXT
 In the chart to the right, the Point C column is the Point C 2nd Level .886 1.128
Retracement of the AB Leg. The BC Extension is the Point D
Extension of the BC Leg Ideal .786 1.272
 For equalization of the AB=CD each retracement needs its
corresponding extension (for AB to = CD in length) 2nd Level .707 1.414
Ideal .618 1.618
2nd Level .500 2.0/

2.236
A B D 2nd Level .382 2.618
C
pi 3.14
B A C
D

Convergence Zone Summary for AB=CD Patterns

AB=CD Point BC
Pattern C EXT
AB=CD Convergence Zone
1. AB = CD (where AB length equals CD length) 2nd Level .886 1.128
2. BC Extension (Alignment of Fibonacci Ratios where BC
Ideal .786 1.272
extension or projection is based on reciprocal of Point C
retracement ratio) 2nd Level .707 1.414
3. XA Fibonacci Retracement
Ideal .618 1.618
2nd Level .500 2.0/

2.236
A B D 2nd Level .382 2.618
C
pi 3.14
B A C
D

Label X, A, B, and C
Convergence Zone:
1. AB=CD
2. BC Extension
3. XA FIBO Retracement
X
(38.2, 50.0, 61.8, 78.6
78.6 XA or 88.6%)
Once the 78.6% Point C is formed and price
The
TheAB
ABleg
legwas measured
is measured and
and added to
added begins to fall the pattern is drawn out
the C point
to Point toproject
C to projectPoint
the DDpoint
Convergence Zone:
1. AB=CD
2. BC Extension
Convergence of AB=CD with XA FIBO %
50% XA
Notice how Point D

Convergence Zone: converges on the 50%
1. AB=CD retracement of the XA leg
2. BC Extension
X
Ideal Bullish AB=CD

 A sells off from a market high and ends at B
 BC retraces the AB leg by .618 or .786
 D extends 1.272 or 1.618 of BC
 CD completes the pattern for a BUY at a Fibo retracement of XA
A (market peak)
B
BUY
HERE
X
Ideal Bullish AB=CD
Convergence Zone:
1. AB=CD
2. 127.2% BC Extension (reciprocal of
78.6% Point C retracement)
3. 61.8% XA FIBO Retracement
Ideal Bullish AB=CD with Wavy Tunnel
Convergence Zone:
1. AB=CD
2. 161.8% BC Extension (reciprocal of
61.8% Point C retracement)
3. 38.2% XA FIBO Retracement
• Notice how Point D completes at

the Tunnel in a Fill the Gap trade
• Since we do not have divergence
in the CAO, we expect a BO-4
trade to take price higher
Ideal Bearish AB=CD

AB=CD Point BC
 Point A starts the move up and ends at B Pattern C EXT
 BC retraces the AB leg 2nd Level .886 1.128
 CD completes the pattern for a SELL at D
Ideal .786 1.272
D (corrective high/
B completion point) 2nd Level .707 1.414
Ideal .618 1.618
2nd Level .500 2.0/

2.236
2nd Level .382 2.618
C
pi 3.14
A (market low)

Ideal Bearish AB=CD with Wavy Tunnel
X • Notice how Point D completes at
the Tunnel in a Fill the Gap trade
• Since we do not have CAO
divergence, we expect the BO-4
Convergence Zone:
trade to take price lower
1. AB=CD
2. 127.2% BC Extension
(reciprocal of 78.6%
Point C retracement)
3. 50% XA FIBO
Retracement
2nd Level Bullish AB=CD

AB=CD Point BC
 C point between .382 and .886 but not .618 or .786 Pattern C EXT
 BC extension 1.13 to 3.14 2nd Level .886 1.128
 An AB = CD or Alternate 1.272 or 1.618
 D at Fibo retracement of XA .382, .50, .618, .786 or .886 Ideal .786 1.272
A (market peak)
2nd Level .707 1.414
C
Ideal .618 1.618
2nd Level .500 2.0/

2.236
2nd Level .382 2.618
B
pi 3.14
D
X

2nd Level Bullish AB=CD

AB=CD Point BC
 If BC corrects .5 of AB, ideal CD target is 2.236 times Pattern C EXT
projection of BC leg 2nd Level .886 1.128
 If BC corrects .382 of AB, ideal CD target is 2.618 times
projection of BC leg Ideal .786 1.272
A (market peak)
2nd Level .707 1.414
C
Ideal .618 1.618
2nd Level .500 2.0/

2.236
2nd Level .382 2.618
B
pi 3.14
D (corrective low)

2nd Level Bearish AB=CD

AB=CD Point BC
 Point A starts the move up and ends at B Pattern C EXT
 BC retraces the AB leg 2nd Level .886 1.128
 CD completes the pattern for a SELL at D
Ideal .786 1.272
D (corrective high/
Ideal .618 1.618
2nd Level .500 2.0/

2.236
2nd Level .382 2.618
C
pi 3.14
A (market low)


AB=CD Point BC
 The .382 to .886 Fibonacci retracement range for Point C of Leg AB Pattern C EXT
can be any Fibonacci ratio that falls within the range as denoted in 2nd Level .886 1.128
the chart to the right, corresponds to the projections between
1.128 and 3.14 Ideal .786 1.272
D (corrective high/
Ideal .618 1.618
2nd Level .500 2.0/

2.236
2nd Level .382 2.618
C
pi 3.14
A (market low)
Convergence Zone:
1. AB=CD
Point C
2. 261.8% BC Extension (reciprocal
Retracement
of 38.2% Point C retracement)
3. 50-61.8% XA FIBO Retracement
BC Extension
XA FIBO %
Look Left for Confirmation
 When the ABCD structure is nearing completion, look for additional

confirmation by looking left for Support and Resistance
A (market peak)

Convergence Zone:
1. AB=CD
2. 261.8% BC Extension (reciprocal
of 38.2% Point C retracement)
3. 50-61.8% XA FIBO Retracement
Look Left for Support in

X
Convergence Zone
Look Left for Confirmation with Wavy Tunnel
The Convergence Zone is validated by

prior support and resistance A Wavy Tunnel Synergies:
1. Price support at Tunnel for
BO-4 Trade
2. FG Trade completes pattern
3. Elliott Wave ABC Zig Zag
Convergence Zone:
1. AB=CD @ 100.44
2. 161.8% BC Extension @ 100.54
3. 50% XA FIBO Retracement @
100.40
The Convergence Zone is additionally

confirmed by prior support and resistance
Convergence Zone:
1. AB=CD @ 4360
2. 1.618 BC extension @ 4344
3. 61.8% retracement of XA @ 4340
The Convergence Zone is validated by

prior support and resistance
Convergence Zone:
1. AB=CD @ 8302
2. 1.27 BC extension @ 8313
3. 50% retracement of XA @ 8286
Time and Price Symmetry
 When the CD leg takes the same amount

of candles as the AB leg in the same AB = CD
amount of time or more the pattern is
said to have good Time Symmetry PRICE
A
 After point C has been confirmed and the C
pattern is drawn out with the all the Fibo
targets converging closely together
creating a tight Convergence Zone, it is B
said to have good Price Symmetry
TIME D

Time and Price Symmetry with Wavy Tunnel
Wavy Tunnel Synergies:

BC retracement represents pullback to
the Wave after PW/FG trade
• Notice how price is moving

up the CD leg.
• Price is moving up CD parallel
The reason for projecting the CD leg equal to price to the time line of AB
and time of the AB leg is to visually track symmetry
Price Symmetry and Convergence Zone
 Since in reality, it is very rare to

find Harmonic Patterns that
measure perfect Fibonacci
percentage relationships
between the three point 50% XA
Fibonacci targets, a Convergence
AB=CD
Zone is created
 The AB=CD projection may not
fall exactly on the XA Fibonacci
percentage

 If the BC leg does not fall exactly on a

Fibonacci percentage when projecting the BC
X
FIBO, the extension point will also be off FIBO % XA
 The 3 lines created make up the BC
Convergence Zone where Point D should fall
 The tighter the Convergence Zone the better
Extension
the PRICE SYMMETRY AB=CD D
 It happens but it is rare for all three lines to B
fall right on top of each other. When it does
happen the structure has perfect PRICE
SYMMETRY
FIBO% AB
C
A

A
• Draw line for AB=CD price This pattern is said to have good
• Draw line for BC FIBO price symmetry due to its tight
extension price Convergence Zone
• Draw line for XA FIBO price
• Draw line for AB=CD price
• Draw line for BC FIBO This pattern is said to have poor
extension price price symmetry for its wide
• Draw line for XA FIBO price Convergence Zone
10% or less of AB price for ideal Convergence Zone
• AB=CD (red line)

• 1.618 BC projection
(red dotted line) Convergence
• 61.8% retracement Target Zone
(blue line)
AB=CD Target is met within

the Convergence Zone
Summary for AB=CD Patterns

AB=CD Point BC
 AB=CD Convergence Zone: Pattern C EXT
1. AB = CD (Alternate is 1.272AB=CD; 1.618AB=CD;2.0AB=CD) 2nd Level .886 1.128
2. BC Extension
3. XA Fibonacci Retracement Ideal .786 1.272
 Look left for confirmation
 Time and Price Symmetry is visually appealing and usually produces 2nd Level .707 1.414
ideal structures
 Ultimate Convergence Zone uses Wavy Tunnel Setups for additional Ideal .618 1.618
confirmation
2nd Level .500 2.0/
2.236
A B D 2nd Level .382 2.618
C
pi 3.14
B A C
D

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Harmonic Patterns

MODULE 2 HARMONIC CHORD AB=CD

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Welcome to the Harmonic Patterns Training Module 2

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The Course Outline

Section I: Elliott Wave Series

Ultimate Section III: Fibonacci Primer

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Elliott Wave Ultimate Course: Section IV

Module 1: Fibonacci Overture

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Harmonic Patterns: Harmonic Chord AB=CD

 Four Precise Swing Moves

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1. Understand the Background behind AB=CD Pattern

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Harmonic Patterns Have 4 Precise Swings

2. Once 3 prices are measured, the 4th price can be X

4. Convergence Zone at stiff support or resistance formed

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AB=CD Simple Pattern

 The AB=CD is a 4-point pattern

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AB=CD Simple Pattern

 Some traders use the AB=CD  Projected from XA,

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Bullish AB=CD Patterns

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Bearish AB=CD Patterns

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AB=CD Pattern Variations

 Almost half the time AB=CD where the

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AB=CD Pattern Variations

 In Elliott Wave Analysis, we say that the D

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AB=CD Pattern Variations

 In Elliott Wave Analysis, we say that the

The Alternate AB > CD

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AB=CD Alignment of Fibonacci Ratios

Point C FIBO BC Extension

.382 (1/.382) = 2.618 D

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AB=CD Alignment of Fibonacci Ratios

 The reciprocal of Point C Retracement is used

 HOWEVER, even though the BC Extension is

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AB=CD Alignment of Fibonacci Ratios

Example of a 38.2% Point C Retracement

 The length of AB usually equals

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Bullish XA with Fibonacci Convergence

NEW Convergence Layer: AB=CD Fibonacci Bullish Convergence

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Bearish XA with Fibonacci Convergence

NEW Convergence Layer: AB=CD Fibonacci

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 The AB=CD pattern looks like Key FIBO level of

The Bearish AB=CD

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