0-5 Harmonic Pattern Explained

The 0-5 pattern is a reversal pattern discovered by Scott Carney. It gives traders a way to read market moves by locating a distinct entry point. The 5-0 pattern is a relatively recent addition among harmonic patterns, and it is considered one of the more rigorous of the group. It helps to understand ABCD Harmonic Pattern Rules.

Although the 0-5 (or 5-0) pattern shares many similarities with other harmonic patterns, several distinctions and features make it a unique structure. It is a pattern many traders find useful, but it requires strict application of its rules.

Let’s look now at the bullish and bearish versions of the 0-5 pattern. Both follow the exact same structure and Fibonacci ratios, and both end in a strong reversal zone.

0-5 Buy Pattern

• The 0X leg marks the start of the pattern’s structure.
• The XA leg has no fixed retracement requirement, but it must not break above the top of the 0X leg.
• The AB leg falls between the 1.13 and 1.618 Fibonacci extension of the XA leg.
• Point C falls between the 1.618 and 2.224 Fibonacci extension of the AB leg.
• For point D, we then need one final lower retracement, which completes at the 50% retracement level of the BC leg.
• The CD leg, ending at D, should be equal in length to the AB leg.

Looking at the bullish 0-5 pattern in the image below, we first want to identify a downward price move, which we call the 0X leg. This is the leg that starts the pattern’s formation. From there, we need to identify an upward retracement, the XA leg, which has no fixed retracement requirement but must not break above the top of the 0X leg.

The price then drops again to make a new low below the 0X leg, giving us the AB leg, which falls between the 1.13 and 1.618 Fibonacci extension of the XA leg.

The BC leg then moves up sharply above the XA high to set a new high, between the 1.618 and 2.224 extension of the AB leg.

From here we need one final lower retracement, completing at the 50% retracement level of the BC leg. This gives us the CD leg, which should be equal in length to the AB leg. Completion of the CD leg marks a potential buy zone.

0-5 Sell Pattern

• The 0X leg marks the start of the pattern’s structure.
• The XA leg has no fixed retracement requirement, but it must not break below the bottom of the 0X leg.
• The AB leg falls between the 1.13 and 1.618 Fibonacci extension of the XA leg.
• Point C falls between the 1.618 and 2.224 Fibonacci extension of the AB leg.
• For point D, we then need one final lower retracement, which completes at the 50% retracement level of the BC leg.
• The CD leg, ending at D, should be equal in length to the AB leg.

Looking at the bearish 0-5 pattern in the image below, we first want to identify an upward price move, which we call the 0X leg. This is the leg that starts the pattern’s formation. From there, we need to identify a downward retracement, the XA leg, which has no fixed retracement requirement but must not break below the bottom of the 0X leg.

The price then rises again to make a new high above the 0X leg, giving us the AB leg, which falls between the 1.13 and 1.618 Fibonacci extension of the XA leg.

The BC leg then moves down sharply below the XA low to set a new low, between the 1.618 and 2.224 extension of the AB leg.

From here we need one final lower retracement, completing at the 50% retracement level of the BC leg. This gives us the CD leg, which should be equal in length to the AB leg. Completion of the CD leg marks a potential sell zone.

In the end, the 0-5 pattern gives a potential reversal zone rather than one exact price, because there are two different projections for point D. If all the projected levels sit close together, a trader can enter a position from within that zone. If the reversal zone is wide, as often happens on longer-term charts where the levels can be 50 pips or more apart, look for some confirmation before entering a trade once price moves in the expected direction.

The 0-5 pattern can be traded using an indicator or by simply watching price action. A stop loss can be placed beyond the far edge of the reversal zone, which means the stop is unlikely to be hit unless the pattern itself is invalidated by a very sharp reversal move.

Read more:

• AB=CD Pattern: The Best ABCD Harmonic Pattern
• Gartley Pattern: Rules, Ratios and Trading Method Explained
• Bat Pattern: One of the Best Harmonic Patterns

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