Fondex cTrader Harmonic Pattern Indicator

05 January 2023

    What Are Harmonic Patterns

    Harmonic patterns are chart patterns that occur in financial markets and are based on the idea that prices move in predictable patterns. These patterns are based on the idea of harmonic ratios, which are ratios that are found in nature and are believed to be present in financial markets as well. Harmonic patterns are used by traders to identify potential reversals in the market and can be used in conjunction with other technical analysis tools to make trading decisions. There are several different types of harmonic patterns, including the Gartley pattern, the Butterfly pattern, and the Crab pattern, among others. These patterns are identified by looking for specific price and time relationships on a chart and can be used on any time frame or market.

    cTrader Harmonic Pattern Indicator

    Fondex cTrader is a very powerful platform. Besides the numerous built-in features it comes equipped with, it allows users to develop very powerful trading tools on top of it, extending the platform’s abilities. One of these sophisticated tools is the free cTrader Harmonic Scanning Indicator. The cTrader Harmonic Scanning Indicator allows you to detect two popular harmonic patterns, the Crab pattern and the Gartley pattern. 

    Gartley Pattern

    The Gartley pattern is the first documented harmonic pattern used for trading, which has been proposed by technical analyst H.M. Gartley. The Gartley pattern is in fact a XABCD pattern that respects the Fibonacci ratios between the pattern’s four legs An XABCD pattern is a five points chart pattern composed of two triangles, connecting important high and low points on the price chart. Below we will see two examples of the Gartley pattern.


    First we will have a look at the bullish Gartley pattern drawn on the price chart below.


    The rules for drawing a bullish Gartley pattern are as follows:



    The bearish Gartley pattern has the opposite rules and it is depicted in the chart below.




    Trading the Gartley Pattern

    The Gartley pattern can be interpreted as a trading signal as soon as point D is formed. Point D is known as the Potential Reversal Zone. This means that at that point in time there is an increased chance that the price movement will reverse. Now let’s see in more detail the charts we posted above.


    In the screenshot below we can see a bullish Gartley pattern. The bullish Gartley pattern has been detected on the EURUSD h3 chart. The free tool detects a set of highs and lows that satisfy the ratios set by the Gartley pattern and draws the pattern on the chart.



    The interesting observation on this chart is the price movement after the formation of the D point, which is our signal in this case. We can see that the price reverses almost immediately and moves towards a bullish direction, exactly like the Gartley pattern predicted.

    Crab Pattern

    The Crab pattern is similar to the Gartley pattern except that it has point D extending beyond point X. 


    We can see a bullish Crab pattern scanned by the cTrader Harmonic Scanning Indicator below



    Crab Pattern Characteristics:


    How To Trade The Crab Pattern

    Once the Crab pattern has formed and follows the characteristics outlined above, a position can be taken after the CD leg has formed, sometimes you will not find the CD leg to reverse near the 161.8% extension, but if price action begins to stall and a reversal begins to happen, it can be a very high probability setup.



    Below we can see an example of a bullish Crab Pattern on EURUSD H1

    Limitations of Harmonic Patterns

    Harmonic patterns can generate a lot of false signals that could lead to substantial losses if used out of context. Therefore, when using strategies based on harmonic patterns, always consider the market fundamentals that currently move the market and combine the signals with other confirmation signals, like oscillators, support/resistance levels and the relevant price action taking place on the chart. 


    The content provided in this material and/or any other material that this content is referred to, whether it comes from a third party or not, is for information purposes only and shall not be considered as a recommendation and/or investment advice and/or investment research and/or suggestions for performing any actions with financial products or instruments, or to participate in any particular trading strategy and cannot guarantee any profits. Past performance does not constitute a reliable indicator of future results. Fondex does not represent that the material provided here is accurate, current, or complete and therefore shouldn't be relied upon as such. This material does not take into account the reader's financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Fondex, no reproduction or redistribution of the information provided herein is permitted.

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