The 5-0 Pattern Strategy is a harmonic trading setup used by advanced forex and CFD traders to anticipate potential reversals at the end of an extended trend. Built on Fibonacci ratios and wave symmetry, this five-point pattern helps traders pinpoint high-probability turning points using price geometry rather than traditional indicators. It’s often seen as a counter-trend strategy that capitalises on exhaustion after impulsive moves.

What Is the 5-0 Pattern?

The 5-0 pattern consists of five major price swings labelled X-A-B-C-D, where the final point D acts as the entry zone for a reversal trade. Unlike other harmonic patterns, the 5-0 doesn’t aim for continuation but rather targets the beginning of a new trend, making it an ideal setup for contrarian traders.

The key structure includes:

• X to A: A sharp price move in the prevailing trend
• A to B: Deep retracement (1.13–1.618 of XA)
• B to C: Moderate reversal (usually 0.382–0.886 of AB)
• C to D: Final move into the reversal zone (0.50 retracement of BC), often with divergence or volume drop

There are bullish and bearish versions:

• Bullish 5-0: Signals a potential long entry after a downtrend
• Bearish 5-0: Signals a potential short entry after an uptrend

How the 5-0 Pattern Strategy Works

1. Identify XA Impulse
   Look for a strong directional move. This leg sets the tone for the rest of the structure.
2. Measure Fibonacci Ratios
   Ensure the AB leg retraces 113%–161.8% of XA. The deeper the retracement, the better.
3. Wait for BC Rebound
   Price retraces against the trend, forming a corrective wave — this should reach 38.2% to 88.6% of AB.
4. Entry at Point D
   Place entry orders around the 50% retracement of BC, which becomes the PRZ (Potential Reversal Zone).
5. Confirm With Divergence or Price Action
   Use RSI/MACD divergence, candlestick patterns, or volume drop at D to strengthen the signal.
6. Target Levels
   Aim for 38.2% to 61.8% retracement of CD as your profit zone. Trail stops once price moves in your favour.

Bullish 5-0 Pattern Example

• XA: Price falls from 1.1200 to 1.1000
• AB: Retraces to 1.0850 (1.382 of XA)
• BC: Rallies to 1.0950 (0.50 of AB)
• CD: Falls to 1.0900 (0.50 of BC)
• Entry: Buy at 1.0900, Stop below 1.0850
• Target: 1.0965–1.0985

Bearish 5-0 Pattern Example

• XA: Rises from 0.9900 to 1.0100
• AB: Retraces to 1.0250 (1.382 of XA)
• BC: Falls to 1.0150 (0.50 of AB)
• CD: Rallies to 1.0200 (0.50 of BC)
• Entry: Sell at 1.0200, Stop above 1.0250
• Target: 1.0135–1.0115

Advantages of the 5-0 Pattern Strategy

• Precision-Based Entries: Offers clear entry, stop, and target levels
• High Reward-to-Risk: Often exceeds 2:1 or 3:1 when pattern completes correctly
• Effective in Reversals: Helps catch early signs of exhaustion and turning points
• No Indicators Needed: Purely price action and Fibonacci-based

Limitations and Considerations

• Pattern Rarity: It appears less frequently than common patterns like head and shoulders
• Requires Patience: Must wait for all five legs to develop — early entry can be risky
• Complex Geometry: Difficult to spot without training or automated harmonic tools
• Subjectivity: Some traders may draw legs differently, impacting accuracy

Tools for Trading the 5-0 Pattern

• Fibonacci Retracement Tool
  For measuring AB and BC legs
• Pattern Recognition Software
  Platforms like TradingView or MetaTrader plugins can auto-detect 5-0 setups
• Divergence Indicators
  Use RSI, MACD, or OBV to spot exhaustion at point D
• Volume Analysis
  Confirm reduced momentum as price approaches PRZ

Use Case: EUR/JPY Bullish 5-0 Setup

• XA drop from 142.00 to 139.50
• AB retraces to 137.90 (1.272 of XA)
• BC rallies to 139.00 (0.50 of AB)
• CD falls to 138.45 (0.50 of BC)
• RSI divergence on 1-hour chart confirms the setup
• Long entry at 138.45, SL at 137.90, target at 139.30 and 139.80

Conclusion

The 5-0 Pattern Strategy offers a reliable, rules-based method to trade trend reversals with confidence. When combined with divergence or candlestick confirmation, it becomes a powerful setup for disciplined traders who value structure over speculation.

To master harmonic patterns like the 5-0 and implement them in live markets with precision, enrol in our advanced Trading Courses designed for technical traders and reversal strategists.