Trade with an Edge

Harmonic Pattern Recognition Software - What Works Best?

I'm often asked these types of questions -

• "Which harmonic pattern recognition software is best or more accurate than another?"
• "Why have you got a pattern and I haven't"?
• "Why does the software say this pattern is a Gartley when the B point is at a 0.382 retracement of the XA leg"? (or something similar)

Here's my take on it.

Limitations of Free Pattern Recognition Software

Traders new to harmonics usually start off with a free pattern recognition indicator tool for use with with MetaTrader4.

There are a number of free harmonic pattern recognition softwares out there - Zup (various versions), search_patterns, Korharmonics, autochartist, ElementalTrader (which is just zup, renamed) are the ones I am familiar with.

But be careful - Poor quality or invalid patterns are often "recognised" by the free pattern recognition softwares (it doesn't matter which one).

Traders new to harmonics and using these tools to find patterns for them often do not have great success. They then blame their losses on harmonics generally, whereas it is the recognition software tool that is at fault.

The fibonacci ratios of all patterns produced by these tools always need to be validated with your eyes and your fib tool. It's best not to trade any patterns that don't comply with the pattern specifications.

Different brokers - different prices

One thing also to recognise is that different brokers produce prices which can vary by a few pips either way from each other. And so it's quite usual for Zup (or any other of the others) to find patterns on one brokers chart and not on the same chart from another broker.

You can even find differences between a demo and live account from the same broker, as they tend to use different data feeds and databases for their demo accounts.

That explains why one trader may find a pattern, while another trader does not - even though they may be using the same version of pattern recognition software.

Harmonic patterns are similar - but not the same

Mass human behaviour/psychology produces similar, but not exactly the same, recurring patterns in the currency price charts. Price patterns are not geometrically perfect - they are fractal, chaotic (as in Chaos Theory) and imperfect.

So, every Bat, Butterfly, Crab and Gartley pattern will be slightly different from every other Bat, Butterfly, Crab and Gartley pattern, in some way, even by a pip or two.

All harmonic pattern recognition software struggles with that because of its digital nature.

Pattern recognition software has logic rules encoded with in-built tolerances for the Fibonacci ratios of the harmonic patterns. It only needs a few pips variation to make the difference between the software recognizing a pattern - or not. Or even calculating a pattern is there - when there is not one.

fxgroundworks have attempted to solve some of the above-mentioned problems, by only alerting a pattern if 3 or more of their data feeds produce the same pattern. Although that increases the chances of a valid pattern, it still doesn't guarantee it, as their search software is, after all, based on Zup and search_patterns.

Which pattern recognition software is most accurate?

By accurate I mean it recognizes the most valid patterns. That inevitably means it recognises less patterns overall - but at least they are the valid ones - according to the harmonic patterns specifications. In my experience this has to be the HarmonicAnalyzer from Scott Carney - the originator of modern harmonic trading.

HarmonicAnalyzer is not free - but - quality always comes with a price. The point is, unlike the free stuff, it always finds good quality patterns and so will pay back in a very short time.

What Are The Best Options?

The best option is to learn to recognise the patterns yourself, using a fibonacci charting tool.

I strongly encourage you to develop that skill anyway - whether or not you use any pattern recognition software - simply because pattern recognition software is not very reliable at finding good patterns.

It just takes a little practice. One way to learn is just focus on one pattern for one whole week. When you have mastered that one, then go on to the next for one whole week. It gets easier, as subsequent patterns are just a variation of the ones before.

What do I do?

Nowadays, I don't rely on pattern recognition software at all, because of all the issues mentioned above. I find patterns myself just by looking - and using the fibonacci tool.

I like to find emerging patterns way in advance of them completing - by looking for good harmonic X-A-B retracements (see harmonic pattern ratios) - and then tracking them while they make a C and then a D.

By the time any software has alerted the pattern, I have usually known about it for many hours or days already.