The harmonic shark pattern is a five-impulse price pattern that signals an impending trend reversal in the given financial market. This pattern is a relatively new phenomenon as Scott M. Carney was the first to identify it and explain it in 2011, only ten years ago. However, the pattern is also famous since it plays a considerable part in Harold M. Gartley’s harmonic trading style, outlined in his book Profits in the Stock Market.
The shark pattern is easily comparable to patterns used in graphical analysis like the double top and double bottom patterns, but it is essentially an updated 5-0 pattern. Therefore, Fibonacci lines, which are crucial for the pattern and without which we cannot be sure that the pattern has developed correctly, must be used to identify reversal points in the shark pattern.
In this post, we’ll go through the fundamentals of the harmonic shark pattern and explain how to trade it so you can implement it into your trading strategies and get the most out of it to secure profits.
How To Identify The Shark Harmonic Pattern
A shark pattern is composed of an impulse leg (X-A) and a retracement leg (B). The retracement has no special significance in this situation, however, a retracement for the X-C leg comes after the continuation leg (C), which must reach a Fibonacci extension of 113% of the B-A leg but not above the 161.8% level.
The shark pattern so obtained should not exceed 113%, but it must reach an extension of 88.6% of this retracement. B-C, which is an extension of the A-X leg and falls between 161.8 and 224%, will be the following Fibonacci extension. However, compared to other harmonic patterns, it is different when it comes to entering a trade. Finding the area to enter trades is not difficult, as the B-C Fibonacci extension and the X-C Fibonacci retracement intersect here.
In addition, the shark harmonic pattern differs significantly from other patterns in that it depends on reciprocal ratios of 88.6% and 113%. Prices rapidly decrease or rise after the price point at D is established. Therefore, the trade needs to be actively managed. To put it another way, you can’t build up the harmonic shark pattern and then come back to trade it. Prices would have advanced significantly by then.
What Do Traders Learn From It?
The shark trading method is a five-leg reversal pattern, like any other harmonic pattern. It adheres to specific Fibonacci ratios.
The configuration of the pattern’s five points, O, X, A, B, and C, sets it apart from other harmonic patterns. In addition, wave X is where leg B’s termination point terminates. It exceeds the Fibonacci ratio range of 1.13 minimum and 1.618 maximum.
The 5-0 pattern structure contains the shark harmonic pattern. Due to the structure, all trades must be based on point C, unlike the other harmonic patterns. While the predetermined profit target is used as point D. Typically, the 50% Fibonacci retracement of the BC leg marks the end of the CD swing leg. Additionally, it must meet the AB=CD requirement.
Trying to seize the last move of a complex pattern arriving at C, is the most popular way the pattern is traded. Additionally, it targets the 50% retracement of the BC swing-leg and contains a protective stop loss above or below 2.24 of the AB retracement.
How To Trade It?
The best trading strategy for a shark pattern is very different from the other chart pattern strategies, as 50 to 61.8% of BC is where the take profit can be found.
After the harmonic indicator has identified the pattern, the best time to enter this trade is at the opening of the following candlestick. Enter the market with a safe stop-loss at the 2.618 extensions of the AB swing-leg as soon as the C-leg forms.
Drawing The Pattern
Choose any low point or swing high on the chart to serve as the starting point 0 for the chart. Track the market’s swing wave movements after identifying the first swing high/low point. Each swing leg needs to be verified and adhere to the shark pattern forex’s Fibonacci ratios.
Trading The Pattern
Purchase at point D, which must meet the condition that CD = 1.13 OX segment. The D to X ranges from 0.886 to 1.13, although it is recommended to make deals with the optimal 1.13 extension.
Stop-Loss
At point C, the stop-los s order can be set below the 1.150 Fibonacci extensions of XA. Move it after the D leg as the market starts to move in the direction of the initial take profit. As any break below will render the Fibonacci requirements for a shark pattern invalid, here is the optimal position to bury the stop-loss order.
Final Thoughts
With this pattern, you must exercise caution, just as you should do with any new pattern. You should only trade the best price structure that precisely fits into each Fibonacci ratio. However, be picky. As a powerful counter-trend approach, the shark harmonic trading strategy performs exceptionally well.
