Harmonic Patterns Explained: XABCD, the PRZ, Gartley and Butterfly Ratios
Lesson 6 of 8 · Intermediate
What is a harmonic pattern and where did it come from?
Harmonic patterns are five-point price structures whose leg sizes are defined by Fibonacci ratios. Their roots go back to H. M. Gartley, who described a five-point pattern in a 1935 book. Later Larry Pesavento linked Fibonacci ratios to these structures, and Scott Carney, with the term Harmonic Trading, standardised the ratios and introduced patterns such as the Bat, Crab and Shark. The Butterfly pattern is credited to Bryce Gilmore.
The main difference between harmonics and Elliott is that harmonics is less about "where are we in the cycle?" and more about "where might price react?" Its output is a zone, not a complete story about the market. For this reason many analysts use Elliott for the big picture and harmonics for more precise zones.
The XABCD skeleton and the AB=CD base
Every pattern has four legs: XA, AB, BC and CD. In a bullish pattern, X is a low, A a high, B a higher low than X, C a lower high than A, and D the final point at the bottom; the overall shape resembles the letter M. A bearish pattern is its mirror image and resembles the letter W.
The core of most patterns is the simple AB=CD structure: two legs in the same direction, roughly equal in size, separated by a correction (BC). In this structure the BC retracement and the CD projection are usually "inverse pairs": if C retraces 0.618 of AB, CD is often about 1.618 times BC. Common pairs: 0.382 with 2.618, 0.5 with 2.0, 0.618 with 1.618, 0.786 with 1.272 and 0.886 with 1.13.
The PRZ: Potential Reversal Zone
In practice, point D is not a point but a Potential Reversal Zone (PRZ), built from the overlap of several independent calculations:
- The retracement or extension ratio of XA; the most important number, which determines the pattern's identity.
- The projection of BC, that is, the size of CD relative to BC.
- The AB=CD structure or its extended version, for example CD equal to 1.272 times AB.
The closer these numbers are to each other, the narrower and better defined the PRZ. The PRZ is a place to look more carefully, not a place to enter thoughtlessly. We review the steps for validating a PRZ in the next lesson.
The Gartley: ratios and an educational gold example
| Point | Common ratio |
| B | 0.618 retracement of XA |
| C | 0.382 to 0.886 retracement of AB |
| D | 0.786 retracement of XA |
| BC projection | 1.272 to 1.618 |
| AB=CD | Often close to equality |
Educational example (not a trade suggestion): a bullish Gartley on XAUUSD with X = 4,000 and A = 4,100, so XA is 100 dollars. B forms at the 0.618 retracement, which is 4,038.2. C rises to 4,080, about 0.68 of AB and inside the allowed range. D is calculated at the 0.786 retracement of XA, which is 4,021.4. Check: BC is 41.8 and CD is 58.6, a ratio of about 1.40, inside the 1.272 to 1.618 range. AB is 61.8, so the AB=CD point sits at 4,018.2. The PRZ is therefore roughly between 4,018 and 4,021.
An important feature of the Gartley is that D does not go beyond X. If price falls decisively below 4,000, the pattern is invalidated.
The Butterfly: ratios and an educational gold example
| Point | Common ratio |
| B | 0.786 retracement of XA |
| C | 0.382 to 0.886 retracement of AB |
| D | 1.272 extension of XA (some versions up to 1.618) |
| BC projection | 1.618 to 2.24 |
| AB=CD | Often the extended version, for example 1.272 times AB |
Unlike the Gartley, the Butterfly completes beyond X. Educational example: X = 4,000 and A = 4,100; B at 0.786 is 4,021.4; C rises to 4,070 (about 0.618 of AB); D at the 1.272 extension of XA is 4,100 minus 127.2, which equals 3,972.8. Check: BC is 48.6 and CD about 97.2; the ratio is about 2.0, inside the allowed range. AB is 78.6 and CD is about 1.24 times that, close to the 1.272 version.
Butterflies often appear at the end of fast-moving legs and near important highs or lows, but because D goes beyond X, the risk that the move simply continues is also greater.
When do they work, and when do they fail?
Harmonic patterns are more readable in choppy markets and large ranges, where price swings back and forth between areas of balance. By contrast, in strong news-driven trends, for example after an unexpected inflation print, PRZs are often broken without a pause. Patterns whose legs are very disproportionate in time (for example XA over two weeks and CD in two hours) are also less reliable.
A warning about software: automatic harmonic scanners often change a pattern up to the last moment (repainting). Do not treat a pattern shown by software after the fact as the same as one that could be identified before price reached D.
Common mistakes
- Measuring the Gartley's D from AB instead of XA; the ratio that fixes D comes from the XA leg.
- Ignoring the B ratio, which defines the pattern's identity, and turning every pattern into a Gartley.
- Treating the PRZ as an exact price instead of a zone.
- Trusting automatic scanners that repaint the pattern after it has formed.
What does volume say here?
The PRZ is built from mathematics; volume shows whether real traders are present in that zone. A PRZ sitting on a previous high-volume area or the edge of a Value Area is usually more meaningful than one in the middle of a low-volume node (LVN), because price often crosses low-volume areas quickly. When price reaches the PRZ, signs such as absorption (in a bullish Gartley: heavy aggressive selling without price moving lower), slowing delta momentum or a change of direction in cumulative delta strengthen the reaction.
By contrast, if price passes through the PRZ on rising volume and strong delta in the same direction with no absorption at all, that is an invalidation sign even if the ratios were perfect. Combining the "where" from harmonics with the "who" from order flow is usually more sensible than relying on either alone. (XAUUSD volume on retail platforms is tick volume; real volume comes from GC futures, converted with the basis.)
📊 See real gold futures volume behind these ideas: free order flow course · today's gold volume map
Frequently asked questions
What is the difference between a Gartley and a Butterfly in one sentence?
In a Gartley, B is about 0.618 and D lies inside the XA leg at 0.786; in a Butterfly, B is about 0.786 and D completes beyond X at the 1.272 extension or more.
Do harmonic patterns work on gold?
XABCD structures do appear on gold charts, but gold is sensitive to macro news and PRZs may be broken on news days. That is why validation and an invalidation level are essential.
How much tolerance is allowed in the ratios?
Most analysts allow a few percent, but the more tolerance you allow, the more patterns get 'found' and the lower their quality. It is best to fix the tolerance in advance.
Education only, not a recommendation to buy or sell; we never give signals. Price examples are illustrative. Test any method on a demo account first, with strict risk management.