The Shark pattern is a type of Harmonic pattern that describes the immediate change in price action after its formation. Introduced by Scott Carney in 2011, the Shark pattern is a later addition to the Harmonic pattern family. The Shark pattern is a distinct 5-point reversal structure that is similar to the Bat Pattern, except for the C point exceeding the BC leg. It can point to a strong counter-trend move.
What is the Shark pattern?
The Shark pattern consists of five swing points (X, A, B, C, and 0), also known as legs, and depends upon Fibonacci ratios and levels. The Shark pattern looks similar to the 5-0 pattern.
You can check more on Fibonacci numbers and ratios and how they are calculated here.
The Shark is different from other Harmonic patterns as it relies on 88.6% and 113% ratios. Once the pattern develops, the price quickly moves between the support and resistance levels. A trader failing to comply with these rules lose the trading opportunities. For example, a trader can’t wait and take the trading position later. After the pattern establishes, he/she needs to act rapidly.
Here’s what the pattern looks like on a chart:
To identify the Shark pattern, a trader needs to remember a few rules. They are:
- The AB leg extends the OX leg between Fibonacci ratios of 113% and 161.8%.
- The BC leg reaches beyond the O by 113% of the OX leg.
- The BC leg is an extension of the AX leg by ratios of 161.8% and 224%.
As the above chart illustrates, the pattern is different from the traditional M and W patterns. However, the trading principles remain the same as any other Harmonic pattern. Besides this, the extended AB leg forms an Extreme Harmonic Impulse wave.
How to use the Shark pattern?
To implement the Shark pattern, one must remember its variations; bullish and bearish.
Bullish Shark pattern
The bullish Shark pattern occurs after a downtrend and identifies a rapid upward movement of the price.
Bearish Shark pattern
The bearish Shark pattern emerges after an uptrend and shows a strong price decline.
For going long and short, traders enter the at 88.6% of the OX leg with profit-target at 61.8% of the BC.
Scott Carney suggested that the ratio of 88.6% is an Extreme Harmonic Impulse wave.
When traders take their position at the OX, there is a sharp upward movement in bullish Shark and downward movement in a bearish Shark. After that, the price goes against the trader’s will. But then the price retrieves and pushes itself in favor of a trader. Finally, a trader exits at the BC.
These highs and lows can make a trader uncomfortable because a trader may lose some of his profits. So, as mentioned earlier, swift actions are required on the trader’s part to take advantage of the Shark pattern.
Shark pattern trading strategy
For a trading strategy, traders may look for the Shark pattern on any timeframe according to their own individual trading needs.
The Shark Pattern is dependent upon the powerful 88.6% retracement and the 113% Reciprocal Ratio, works extremely well retesting prior support/resistance points (0.886/1.13) as a strong counter-trend reaction.
A proper Shark pattern needs to fulfill the following three Fibonacci rules: AB= retrace between 1.13 – 1.618 Fibonacci Extension of XA leg; BC= extends to 113% Fibonacci extension of 0X leg; CD= Poses a target of 50% Fibonacci Retracement of BC leg.
The Shark pattern is a distinct 5-point reversal structure that was discovered by Scott Carney in 2011. It is similar to the Bat Pattern, except for the C point exceeding the BC leg. It can point to a strong counter-trend move. The potential Reversal Zone (PRZ) is defined by the following harmonic levels: the 0.886 retracement of initial leg and the 1.13 reciprocal ratio of the initial leg. Targets can be various retracements of the CD leg, all the way up to C itself. There are different methods of determining where the stop would go. Some put it beyond the next structure level after the D point, others choose the 1.41 extension of XA.
One way to involve the Shark pattern in a trading strategy is to use it in conjunction with other technical indicators.
Shark pattern buy strategy
- Locate the pattern after a downtrend.
- Wait for the price bar to go bullish before entering.
- Enter the trade at the OX leg.
- Place a stop-loss at the recent low.
- Exit the trade at the BC leg.
Shark pattern sell strategy
- Look for the pattern after an uptrend.
- Wait for the price bar to go bearish before entering.
- Enter the trade at the OX leg.
- Place a stop-loss near the recent high.
- Exit the trade at the BC leg.
Shark pattern conclusion
The shark harmonic pattern shares some of the most unique conditions that can be found on some of the extreme patterns. For instance, both the shark pattern and the 5-0 are not typical M-shaped or W-shaped patterns. The shark pattern comes up before the 5-0 pattern. It also has a particular and specific Fibonacci level that the deep crab shares.
The shark harmonic pattern is a 5-0 trend reversal pattern with unique Fibonacci ratios and a set of rules. To trade the shark harmonic pattern, a trader will be looking to enter a trade at C point, which is the 88.6% retracement of OX. Stop-loss is placed at D level or 113% Fibonacci level of the XA leg.
Conservative traders look for additional confirmation before entering a trade based on an indicator value, a specific candlestick pointing at a reversal or confluence with other methods. The Shark pattern can be either bullish or bearish. It is as effective as other harmonic patterns and a common variation on trading this pattern is to trade the last leg to completion.
The Shark Pattern can be used on your trading platform charts to help filter potential trading signals as part of an overall trading strategy.
The harmonic shark pattern is also a bit complex when compared to your more basic candlestick patterns that you may already be using in your forex trading strategy. Therefore traders who are new to harmonic trading should trade the shark pattern only after they have gained considerable experience identifying this pattern on their charts.
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