Forex Chart Patterns

5-0 Harmonic Pattern Trading Guide

5-0 Harmonic Pattern

5-0 harmonic pattern is a 5-wave pattern that represents a trend reversal and end of retracement move on the chart.

All the waves in the 5-0 pattern are based on specific Fibonacci ratios. This pattern also shows the break of the trend by the formation of lower low or higher high that’s the symbol of a trend reversal.

Types of 5-0 Pattern

5-0 harmonic pattern is categorized into two types

  • Bullish 5-0 harmonic pattern
  • Bearish 5-0 harmonic pattern

How to find out 5-0 pattern

5-0 pattern starts from 0 unlike in other harmonic patterns that start with X. It starts from 0 and is complete at D. 0XABCD is used to symbolize this pattern.

To detect the 5-0 pattern on the chart in trading, there are fixed Fibonacci ratios for each wave. You need to follow these ratios to identify the 5-0 pattern.

  • 0XA is an initial wave. Pattern starts after this wave
  • AB wave must be between 1.13 and 1.618 retracement of XA wave
  • BC wave must be between 1.618 to 2.24 retracement of wave AB
  • CD wave must retrace to 0.5 of BC
  • Point C should lie between 0.88 and 1.13 of 0 to X wave

At point D, the 5-0 pattern completes.

Bullish 5-0 pattern

The condition for a bullish 5-0 structure is that point C must form a higher high and 0XAB wave must represent a bearish wave by making lower lows.

Because it’s a reversal chart pattern so a break of the bearish trend will turn the bears into bulls. In a 5-0 bullish pattern, we will enter only on the minor retracement after bearish trend breakout by point C.

Bearish 5-0 pattern

In the bearish 5-0 pattern, point C must form a lower low, and 0XAB must represent a bullish wave (formation of higher highs).

When this pattern forms, it turns the bullish wave into a new bearish wave. It forms at the end of a trend. As it signals the start of a new bearish trend, it gives a high-risk reward.

What does 5-0 harmonic pattern indicate?

This harmonic pattern tells traders that a new impulsive wave is about to start. The previous trend has been ended and a new trend will start.

5-0 pattern totally depends on Fibonacci ratios. If any Fibonacci ratio is not meeting a specific criterion, then it will be an invalid pattern. This feature makes it a totally natural and valid chart pattern. Because Fibonacci is a natural pattern, and it works.

How it represents trend reversal?

Basically, when a wave makes lower low and lower highs then it becomes a bearish wave. But after bearish wave when higher high forms then trend get reversed and it also works on this principle. The addition of fix Fibonacci ratios makes it a more valid chart pattern that can be used in trading.

5-0 Harmonic Pattern Cheat Sheet

Here is the cheat sheet that includes all the types of 5-0 pattern in trading. Everything has been explained just in one image. It makes it easier to understand this harmonic chart pattern.

5-0 harmonic pattern cheat sheet

5-0 pattern trade setup

There are two methods of trading this pattern.

The first one is to trade this pattern alone and the second method is to trade it only at a key level.

The latter one has a high probability of winning as compared to the first one. But it is okay if you are trading 5-0 pattern only because it’s already made by using many Fibonacci parameters. The addition of a key level will help to place a safe stop loss and a high probability trade setup.

Trading at Key level

Trading at a key level means you need to look for a 5-0 pattern at a key level. This means a bullish pattern must form at the support or demand zone and a bearish pattern must form at the resistance or supply zone. It will increase the probability of winning in a trade.

Trade confirmation and Entry

After completion of the 5-0 pattern, look for a candlestick pattern at point D which is at the Fibonacci 50 level. A bullish pin bar, bullish engulfing, or any other bullish candlestick pattern at Fibonacci 50 level will act as a confirmation for the trade.

You need to open a buy order just after candlestick pattern confirmation.

In case of bearish setup, look for a bearish candlestick pattern at Fibonacci 50 level and open a sell trade just after candlestick pattern confirmation.

Stop-loss level

To place a stop loss, draw a zone between Fibonacci’s 61.8% and 78% levels. Always place a stop loss below or above this zone to keep it safe.

Take-profit level

Split the take profit into two. It will decrease the risk factor if you will break even the trade after taking the first profit.

  • First take-profit level is at point C
  • Second take-profit level is 1.618 Fibonacci extension of BC wave
5-0 pattern trading

Conclusion

5-0 is a type of harmonic pattern that is more complicated, but it has a high probability due to confirmation of trend reversal (lower low and higher high). I will highly recommend to not miss a single opportunity related to this pattern if you found it on the chart.

But before trading this pattern on a live account, don’t forget to backtest this pattern at least 100 times. Backtesting will also improve your concepts about this pattern visually. It will also tell you which pattern works most of the time and which does not work.

Tagged ,

Leave a Reply

Your email address will not be published. Required fields are marked *