Shark Harmonic Pattern guidelines
The Shark pattern is a specific five-point reversal structure on the candlestick chart that was founded in 2011 by Scott Carney. This Shark forex pattern is not known by its name, like other harmonic patterns, but by its profitability ratios. The pattern’s design builds on specifying Fibonacci parameters. Fibonacci is the basic element of all harmonic patterns, like the shark pattern. You won’t find the exact shark on a candlestick chart, but you will follow the Fibonacci parameters of each wave of the shark pattern. In this article, we will learn more about the shark candlestick pattern in forex.
Shark Harmonic Patterns guide
What is a Shark Harmonic Pattern?
A shark is a harmonic pattern consisting of five waves. Traders identify it in trading by following a specific Fibonacci ratio of each wave. These ratios distinguish it from other harmonic modes.
Traders must understand the importance of the shark trade here. Sharks in real life are big animals that eat small animals in the sea. In trading, sharks mean big traders, or big institutions weeding out small traders by chasing stops in big markets.
It is a relatively new trading pattern that was discovered in 2011 by Scott Carney. The shark pattern spots as shown in the picture below and uses 0, X, A, B, and C swing points to name the pivot or swing legs.
If we want to read the price action of the bullish chart pattern, we will see that prices start from a starting point of 0. The price then reverses from point X and returns to point A. So, why did the price retrace from point x?
Because this is an important resistance level. Due to the increase of demand, the market reverses from point A, breaks resistance X, and forms point B.
Moreover, remember that the market is breaking through resistance and many retailers will be buying here when it does. By breaking the X point, the market is chasing the stops of retail traders who set their stops above that resistance, and as a result of the breakout, many buyers are tempted to open long positions.
Now that prices will turn, many retail shoppers will lose hope. He will now break the requirement level A and then point to zero. After the breakout of zero, almost all retail traders close their positions at a loss and tend to sell as support was broken.
How do you draw a Shark pattern?
It is quite simple to detect and draw a shark pattern.
Its structure has an advancing leg (X-A) and a retracing leg (B). In this case, the retracement has no particular value. The continuation leg (C) must reach the 113% Fibonacci extension of legs B-A, but should not exceed the 161.8% mark, followed by a retracement of X-C.
The resulting shark pattern must reach an 88.6% extension of this retracement, but should not exceed 113%. The next Fibonacci extension will be B-C, which is an extension of the A-X branch in the range of 161.8% to 224%.
Bullish Shark structure
As the name suggests, this pattern predicts the bullish direction of the market. Follow the criteria below to identify bullish shark patterns on charts in technical analysis.
0 to X are the initial waves and patterns from here.
- X must be greater than 0.
- X to A is the second wave. that we place them back to the 0.32-0.5 Fibonacci level.
- Point B must be between the 1.13-1.618 Fibonacci extension levels of the XA wave.
- Point C must be between the 1.618-2.24 Fibonacci extension levels of the AB wave.
This is the last point of a bullish shark pattern. Point 0 should be between the 1.13-0.86 Fibonacci levels of the 0B wave.
Bearish shark structure
A bearish pattern indicates the bearish direction of the market. It shows that the bears are coming and they will destroy the market.
As with bullish patterns, you need to follow these Fibonacci ratios to spot bearish shark patterns in your trades.
- Point X must be less than 0. 0 is the starting point of the pattern.
- The XA wave needs to fall back to the 0.32-0.5 Fibonacci retracement level.
- Point B must be between the 1.3-1.618 Fibonacci extension level of the XA wave.
- Point C must be above the 0 initial points and between the 0.88 and 1.12 Fibonacci levels of the 0B wave.
How to use this pattern in forex trading?
In this section, we will present you with some examples to be more familiar with the shark pattern trading strategy.
Let us start with the bullish shark pattern.
Well, harmonic traders have several ways to trade the bullish shark pattern. Therefore, there is no one-size-fits-all way to trade this model. So here are some of the more traditional trade management rules for a bullish shark candlestick pattern.
- Enter a limit order to buy between the 88% and 113% retracement levels of the OX segment.
- Then, place a stop loss at the 127% extension of the OX leg.
- After that and using the dual target lateral exit method, set the initial target below point A of the pattern. And, the second target is set below point B of the pattern.
If you refer to the candlestick illustration of the bull shark pattern above one more time, so you can see where these levels would trigger in the pattern structure.
Moving to the bearish harmonic shark pattern now:
- Enter a limit order to sell between 88% and 113% of the retracement level of the OX segment.
- After that, place a stop loss at the 127% extension of the OX leg.
- Then, use the dual-target scale-out exit method, where the initial target is set directly above the pattern’s point A. We place the second target directly above point B of the pattern.
Referring again to the candlestick chart of the bearish shark pattern, you can see where these levels are in the shark pattern formation.
Bullish Shark Pattern Setup
Now that after identifying this structure as a bullish shark pattern, we can trade this pattern with reference to our rules. We know that our entry requires a buy limit order to swing down when the price is close to point O. You can see this shark pattern entry signal on the price chart. Immediately after executing a buy limit order, we will place a stop loss on the trade.We should place a Stop loss at the 127% extension level of the OX price segment. You can mark this level on the price chart by the green horizontal line below the buy entry.
We will also enter our two goals if the transaction goes in the direction we expect. The initial target is set at a level corresponding to the low seen in Shark Mode. Also, our second target is below point B, at the high of the Shark formation. Both levels are marked on the price chart for your reference.
Bearish Shark Pattern Setup
After detecting a bearish shark pattern on the candlestick graphic, an entry signal occurs when the price moves higher to test the swing high at point O. You can see where this sell pending order places in this particular trade setup.
After our sell entry order execution, we turn our attention to the stop loss and target position. As shown above the sell entry, the stop loss order will be set to a 127% rollover. As shown, the first target will be set near the swing high at point A. The second target places above the swing low at point B.
Immediately after the sell entry signal, the price rises, but the result is only temporarily higher. Eventually, the bullish momentum starts to fade and the price starts to move lower before our stop order triggers.
Before long, the price was able to reach our original target, Target 1, as shown. Since then, the price reverses upwards. From here, we expect the price to move lower towards the swing B low, which is also our second target point.
The best stop-hunting design among harmonic patterns is the shark candlestick structure. Harmonic patterns are the best and have high winning accuracy, but they are rare. Because of the Fibonacci ratios, it takes a little more effort on your part to spot these patterns on the chart. If you backtest this pattern at least 100 times, you can spot the harmonic pattern in the one-second view of the chart. The best time frame to trade the Harmonic Shark pattern is from 15 minutes to a daily time frame.