The Crab is a type of Harmonic pattern that stretches at point D and defines a potential reversal. Developed by Scott Carney in 2001, it is one of the most precise Harmonic patterns considered by the author. According to Scott Carney, the Crab Pattern is the most accurate harmonic pattern. The Crab Pattern is characterized by a high reward-to-risk ratio and a very tight stop-loss order placement. As with all harmonic patterns, the Crab pattern is a reversal pattern. Therefore, we have the bearish Crab pattern that signals a bearish reversal in price and a bullish Crab pattern that signals a bullish reversal in price.
What is the Crab pattern?
Like other Harmonic patterns, the Crab has a five-point structure—these points, known as legs, forms with the help of Fibonacci numbers and ratios.
The difference between Crab and other Harmonic patterns is that the PRZ (potential reversal zone) expands at the point D. This expansion reaches beyond the X leg. The PRZ is a region where three or more Fibonacci numbers converge and form the Harmonic pattern.
This is how the pattern looks like on the chart:
To identify the Crab, traders must know its calculations. They are:
- The AB leg retraces between 38.2% to 61.8%.
- BC retraces at 38.2% to 88.6% of the AB leg.
- CD extends up to 161.8% of XA and extends 224% to 316% of the AB leg.
- The pattern completes at point D, where traders take their positions.
The Crab looks similar to the Butterfly pattern. The difference lies in their measurements.
The Crab has one variation, which is called the Deep Crab pattern. The Deep Crab evolves from the Crab and the invalid Bat patterns. Though the Deep Crab looks identical to the Crab, the Deep Crab should retrace 0.886 at the B leg.
How to use the Crab pattern?
As with many other chart patterns, the first step you need to take is to identify the precise harmonic pattern on a price chart. The process is a bit complicated regarding harmonic trading, mainly due to the exact Fibonacci ratios that must be formed to identify the pattern.
Remember that every harmonic pattern like the Gartley pattern, Cypher pattern, XABCD pattern, bat pattern, and harmonic shark pattern has unique ratios that must occur so the pattern would be valid.
To implement the Crab pattern, one must familiarize himself/herself with its bullish and bearish patterns.
a. Bullish Crab pattern
The bullish Crab emerges in an uptrend and signals a price reversal at point D. Traders take their long positions at point D, and profit-targets are set at point CD.
b. Bearish Crab pattern
The bearish Crab in the downtrend at identifies a price reversal at point D. Traders take short positions at point D and set their profit-targets at CD leg.
According to Scott Carney, the price action in the Crab is most extreme of all Harmonic patterns. This means its highly volatile. Besides this, there are no definite stop-losses. So, to place a stop-loss, one should look for the furthest projections. In other words, traders must wait for the highs and lows to be formed and set above/below these levels.
Sometimes the Crab can leave traders astray by giving false signals. This happens mostly on shorter timeframes. The best way to handle this issue is to wait for the Crab to fully appear, and take trading positons after point D.
Crab pattern trading strategy
As it is a reversal pattern, once a bearish crab pattern is formed it signifies a potential bearish price action. While there is no specific method to trade this specific pattern, here are some tips that have proven successful to traders using the crab pattern strategy.
While there is no specific set method of trading the bullish crab pattern, it is common knowledge that a reversal pattern; implies a counter-trend move in the market. This pattern typically points to an uptrend, hence it is used to figure out a buy order.
The Crab pattern requires patience on the trader’s part, as it can take time to surface correctly. Traders may look for the Crab pattern on any timeframe according to their own individual trading needs.
Crab pattern buy strategy
- Locate the pattern in an uptrend.
- Wait for the price bar to go bullish before entering.
- Enter the trade at point D or after it.
- Set a stop-loss near the recent low.
- Exit the trade before the price drops.
Crab pattern sell strategy
- Look for the pattern in a downtrend.
- Wait for the price bar to go bearish before entering.
- Enter the trade at point D or after it.
- Set a stop-loss near the recent high.
- Exit the trade before the price rises.
Crab pattern conclusion
The Crab pattern is similar to a Butterfly pattern in that it is a reversal pattern composed of four legs marked X-A, A-B, B-C and C-D. The Crab is another reversal pattern that allows you to enter the market at extreme highs or lows.
The harmonic Crab is an extreme harmonic pattern which means price action will typically be volatile and be extreme as it enters the Potential Reversal Zone (PRZ). In a bullish Crab typically the highest number in the harmonics support zone is going to be the alternate ABCD component that is either 1.24 or 1.618AB=CD.
The Crab pattern does give entry and exit points, but it can be complicated for new traders. Traders may combine the Crab pattern with momentum oscillators to confirm the price reversal.
The Crab Pattern can be used on your trading platform charts to help filter potential trading signals as part of an overall trading strategy.
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