How to trade with Shark Harmonic Pattern

If you follow some analysis on Seputarforex, surely you will find several terms related to harmonic patterns as technical guidelines. From how to trade the simplest harmonic patterns like ABCD to Gartley and his friends, all offer high trading signal accuracy. Almost all of these patterns have been discussed, but there is still a unique pattern that has not been revealed. Now, turn the Shark Harmonic pattern that we will peel.

Wow, from the name it sounds fierce. How hot is this pattern? For information, the Shark harmonic pattern is able to generate profits aggressively if you are able to recognize when this signal appears on the chart.



Understanding Shark Harmonic Pattern
Shark Harmonic Pattern was first introduced by Scott M. Carney (professional stock trader) in his book entitled "Harmonic Trading" in 2010. Visually, the pattern looks similar to Cypher Pattern; the highest and lowest points are always higher than the previous peaks and valleys.



The difference is that the Shark harmonic pattern starts from point 0, while the Cypher pattern starts from point A. The five points of this reversal pattern form a candidate for the 5-0 pattern (0, X, A, B, C, D). Next, the last leg (BC) the Shark Pattern looks longer because it is pulled from the extension 131% from the first leg (0X).

The essence of the Shark harmonic pattern is its accuracy to detect a key Resistance or Support level from the starting point (0) to point C. Prices will visit these important levels with strong predictions that the movement will bounce in different directions.

Before trying to trade with signals from harmonic patterns, you must recognize the formation first on the chart. Basically it's the same as recognizing a price pattern (Chart Pattern), but here you need a Fibonacci tool to measure the length of each foot in this reversal pattern.

The legs on the pattern are useful to find out at what level the price will start to reverse from the lowest or highest point. So, you can determine where the trading position will be opened, plus when the position can be closed to realize profits.

Following are the rules for measuring the harmonic pattern of Bearish Shark through the Fibonacci Retracement and Extension lines.


  • The 0X leg is the first leg and is drawn from the first Swing High (from top to bottom).
  • Foot XA is a retracement of 38.2% to 61.8% of leg 0X.
  • Line AB is drawn from the Fibonacci Extension of 113% to 161.8% of the XA line.
  • The length of the line BC is the Extension Fibonacci 113% from the first line, 0X.


As for the Bullish version, 0X feet are pulled from the first Swing Low (from the bottom up). The rest, the Retracement and Extension rules are exactly the same.



Like the way to trade other harmonic patterns, the basic rules above must be adhered to so that the quality of the signal is maintained in its accuracy.


How to trade Shark Harmonic Pattern
Trading with harmonic patterns can actually be done on all kinds of timeframes, as long as price movements meet the Retracement and Extension requirements specified above. If you are just learning to use harmonic patterns, it is recommended to use a high timeframe like H4 or Daily first, to avoid the risk of false signals at price noise at a low timeframe.

Here is an example of how to trade a Bearish harmonic pattern:

From the EUR / USD chart (h4) above, the reversal pattern gives a Bearish signal when the price approaches the key Resistance level at point C. You can get ready to open a Short position when the price has reached the Fibonacci Retracement of 0.88% from 0X feet.

After the position is opened, the price is expected to move down towards the 50% to 61.8% Fibonacci retracement target of the BC line. Closing a trading position can also be done by taking into account the emergence of a candlestick reversal formation. Keep in mind, harmonic patterns do not guarantee 100% accuracy. Therefore, you also need to set up a Stop Loss to limit losses.

There are several methods for setting up Stop Loss on the Shark harmonic pattern. First, you can use the Risk / Reward ratio to determine the distance of the SL from opening. Second, use the Fibonacci Extension 1.15 from foot 0X as the benchmark SL. If the price has moved the extension, the signal for this harmonic pattern has been invalid.

What about the Bullish version? Similarly, the difference this time is that expectations for prices will climb to the Fibonacci Retracement of 50% - 61.8% of feet 0X. How to trade harmonic Shark Bullish is to find the best Buy opportunities when the price has touched an important Support point.


Strengths and Weaknesses of Shark Harmonic Patterns
Like the harmonic pattern in general, this pattern provides many advantages as well as limitations that need to be considered before testing the trading method. Among other things are as follows:

Advantages:

  • Accurate: able to highlight important Resistance and Support levels with high potential to reverse direction.
  • Flexible: can be used on all kinds of timeframes and any pair.
  • Simple: You don't need a pile of indicators or complicated calculations to determine the opening and closing positions. You only need to use Fibonacci Retracement to identify the location of each of its essential points.
Deficiency:

  • Subjective: the accuracy of the signal can change if you do not keep the formation rules of each point. This usually happens when a trader forces to get a trading signal.
  • Rarely arises: formation of this reversal pattern is relatively rare at high timeframes. Usually prices move outside the regulation of Retracement or Extension.
Strengths can be maximized and deficiencies can be reduced if you adhere to the Entry and Exit discipline in how to trade with the Shark harmonic pattern. Do not forget too, use Money Management properly to maintain profits and reduce the risk of loss.

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