The Harmonic Bat pattern is a type of Gartley pattern that signals a potential reversal. Developed by Scott Carney in 2001, the Bat is considered one of the most accurate Harmonic patterns by some traders. The Bat pattern is a retracement and continuation pattern that occurs when a trend temporarily reverses its direction but then continues on its original course. It can give you the opportunity to enter the market at a good price, just as the pattern ends and the trend resumes, and has a bullish and bearish version.
What is the Bat pattern?
Like other Harmonic patterns, the Bat consists of five points (X, A, B, C, and D), that are known as the legs.
To identify the pattern, these points are drawn with the help of Fibonacci numbers and ratios. Fibonacci is a sequence of numbers that forms by adding the two previous numbers (0, 1, 1, 2, 3, 5, 8, 13, 22). And Fibonacci ratios are obtained by dividing Fibonacci numbers.
You can check how to calculate Fibonacci ratios in detail by following the link here.
The Fibonacci numbers and ratios combined with the five legs form the Bat pattern.
This is how the pattern appears on the chart:
There are certain peculiarities which a trader needs to understand before finding the Bat pattern.
- From the leg X to A, there is a random upward or downward movement.
- From leg A to B, the retracement is between 38.2% to 50% of XA.
- From leg B to C, the retracement lies between 38.2% to 88.6% of AB.
- The leg C to D has a retracement of 88.6% of XA or between 161.8% to 261.8% extension of the AB.
The highs and lows of these Fib levels with five legs, validate the occurrence of the Bat.
When drawing an analogy between the Bat and Gartley, the difference lies in their Fibonacci measurements.
How to use the Bat pattern?
The Bat pattern comes in bullish and bearish variations.
a. Bullish Bat
The bullish Bat occurs in a downtrend and signals a potential reversal. The pattern looks like M.
b. Bearish Bat
The bearish Bat appears in an uptrend and identifies a downward movement. The pattern resembles W.
In the bullish pattern, the X leg is at a low level. For going long, traders take their positions at the point D. They place a stop-loss below the point D.
Conversely, in the bearish variation, the X leg is at a high level. Those who wish to go short take their positions at the point D, and set a stop-loss near its high.
A key note to remember is, a trader may wish to wait for the Bat pattern to fully appear. Because sometimes the Bat pattern can give false signals. For example, even the pattern is present on the chart, the price is moving in another direction. In this scenario, traders may avoid entering the trade.
A helpful way to solve this problem is combining the Bat with other technical indicators, for the confirmation of the trend.
Another approach trader can take, to not enter at point D but above or below it.
Bat pattern trading strategy
The bearish Bat pattern is one of four major harmonic trading patterns. The other three include the Gartley pattern, Butterfly pattern, and Crab pattern. The Bat pattern offers the best reward to risk profile of all these other harmonic structures. This is due to the deep retracement that is required to validate the bat formation.
To implement the pattern, traders can look for the Bat on any timeframe according to their own personal trading preferences. The market strategy of the pattern is suitable for all time frames and all markets types. Traders have to keep in mind that on lower time frames using the bat pattern market strategy has some challenges because the pattern tends to appear on less frequent on lower time frames.
Bat pattern buy strategy
- Locate the pattern in a downtrend.
- Wait for the rice bar to go bullish before entering.
- Enter the trade at point D.
- Place a stop-loss near the recent low from point D.
- Exit the trade before the price drops.
Bat pattern sell strategy
- Find the pattern in an uptrend.
- Wait for the price bar to go bearish before entering.
- Enter the trade at point D.
- Place a stop-loss near the recent low from point D.
- Exit the trade before the price rises.
Bat pattern conclusion
The Bat Pattern can be used on your trading platform charts to help filter potential trading signals as part of an overall trading strategy. The pattern incorporates the 0.886XA retracement, as the defining element in the Potential Reversal Zone (PRZ). The B point retracement must be less than a 0.618, preferably a 0.50 or 0.382 of the XA leg.
The pattern possesses many distinct elements that define an excellent Potential Reversal Zone (PRZ). The pattern typically represents a deep retest of support or resistance that can frequently be quite sharp. The bat pattern is known as the most accurate of all harmonic chart patterns; however, using it requires the consideration of a range of factors, including the Fibonacci measurements, entry levels, and profit targets.
A bat harmonic can be either bullish or bearish. This depends on where it appears on a price chart – at the bottom of a downtrend or uptrend. But if it has all the conditions and Fib ratios, it is indeed a harmonic bat pattern. Just as it is with many harmonic patterns, there is a bullish and a bearish version of the bat pattern.
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