Shark Harmonic Pattern in Trading: Get The Information

Key Takeaways:

• Pattern Structure: The Shark Harmonic Pattern consists of five points and four price movements, offering reliable entry and exit signals.

• Fibonacci Ratios: Specific Fibonacci ratios play a pivotal role in pattern identification, with variations occasionally tolerated.

• Mastering the Pattern: Traders should accurately draw the pattern, focus on the AB leg’s sharp price movement, and distinguish it from similar patterns like crab patterns.
• Pros and Cons: The pattern boasts a high success rate but may pose challenges for new traders and require external plugins on some platforms.

Trading has many chart patterns and tools for analysis that traders use to make smart choices. 

One such pattern is the Shark Harmonic Pattern, discovered by Scott Carney in 2011. 

This article will discuss the Shark Harmonic Pattern. It will cover identifying the pattern and its positive and negative signals. But before we explore the advantages and disadvantages of using the pattern in trading, let’s know how to identify it first, shall we?

How to identify the Shark Harmonic pattern exactly?

The Shark Pattern, often referred to as a harmonic pattern, presents itself with five crucial swing points denoted as O, X, A, B, and C, all interconnected by four distinct legs named OX, XA, AB, and BC. 

The OX leg signifies an impulsive move within harmonic trading, while XA marks a retracement. 

The AB leg carries forward with another impulsive movement, sometimes as a double top or bottom, before the BC leg retraces near point O, ultimately forming the entry point C.

Effectively identifying the Shark pattern.

To effectively identify the Shark Pattern, it’s imperative to pay heed to specific Fibonacci ratios, as they play a pivotal role in its recognition:

1. The AB leg extends XA from 113% to 161.8%.
2. The BC leg extends AB by a range of 161.8% to 224%.
3. The BC leg extends OX from 88.6% to 113%.

Following Fibonacci ratios is a good guide, but use your judgment when using them on real-time charts. 

Occasionally, variations may arise where a pattern extends slightly beyond the specified ratios, such as reaching 163% instead of the exact 161.8%.

In such instances, traders should remain open to considering the entry point of the Shark Pattern as long as the other ratios remain within the acceptable range and other technical analysis tools align with the proposed direction.

Shark Harmonic Pattern – A Brief History

Before we dive into the details of the Shark Harmonic Pattern, it’s essential to understand its historical context. Harmonic patterns have existed for many years, starting with H. M. Gartley and later improved by Larry Pesavento. 

These patterns are considered by many as the “holy grail” of trading due to their high success rates, typically around 70%. They can be applied to various time frames and offer favourable risk-reward ratios.

Scott Carney’s discovery of the Shark Harmonic Pattern brought a new dimension to harmonic pattern trading. 

This pattern consists of four price moves and resembles a 5.0 pattern. The Shark pattern is different because it has a strong movement at point C, suggesting a likely change in price direction.

Bullish and Bearish Indications

The Shark Harmonic Pattern is a useful tool in Forex trading for effectively trading the harmonic shark pattern. It provides helpful data on trends for traders interested in the shark pattern. 

To find a bearish shark pattern and trade it in a bearish direction, traders must carefully analyze the pattern. During a bearish situation, looking for a Shark pattern is advisable. A second peak, the BC leg, higher than the first peak, characterizes this pattern. 

Conversely, when seeking to trade the harmonic shark in a bullish direction, traders should analyze the pattern for a bullish shark pattern. In this case, the first top should be lower than the second, indicating a potential bullish trend.

Bullish shark harmonic chart – example

The bullish shark pattern above highlights the characteristic volatility near the PRZ at point D. In this example, the 88.6% entry was swiftly triggered, reaching the 61.8% price target in just a few candles. 

The broader stop-loss range emphasizes assessing risk and reward in shark pattern trades. The harmonic shark pattern differs from the ‘M’ and ‘W’ patterns. The long AB leg is important for its formation. 

Given its complexity, especially akin to the crab pattern, traders new to harmonic trading should gain substantial experience before trading the shark pattern.

Bearish shark harmonic chart – example

The bearish shark pattern above provides valuable insights regarding entry and exit strategies. In this pattern, the entry point is typically identified at around 88.6% of the OX leg, while the target for the trade is often set at approximately 61.8% of the BC leg. 

The shark pattern is very volatile, similar to the harmonic crab pattern. One noteworthy characteristic of the shark pattern is its inherent volatility, akin to the harmonic crab pattern. 

The chart above displays many fluctuations, including long candlestick bodies and sharp spikes. These fluctuations are particularly noticeable near the Potential Reversal Zone (PRZ) at point C.

Pattern Structure and Key Takeaways:

Let’s break down the key components of the Shark Harmonic Pattern:

1. Structure: The pattern comprises five points labelled 0, X, A, B, and C. It involves four price movements.
2. Fibonacci Ratios: The AB movement should extend between 113% and 161.8% of the OX movement. The BC movement should extend beyond point O for 113% of the OX leg movement. The BC move should also be a 161.8% or 224% extension of AX.
3. Entry Point: Traders typically enter at point C, where the pattern is complete.
4. Reliability: The Shark pattern provides accurate information on entry points, profit-taking levels, and stop-loss targets, offering an advantageous risk-reward ratio.

Mastering the Shark Pattern for Effective Trading

Trading the shark pattern involves identifying specific Fibonacci retracement and extension levels to confirm validity. It’s essential to draw the shark pattern accurately, considering the AB leg’s sharp price movement, as this leg plays a pivotal role in the pattern’s structure. 

When trading this pattern, traders need to be good at finding the shark among similar patterns like crab patterns. This entails carefully analysing the positioning of the AB leg within the pattern and looking for the key criteria that distinguish it from other patterns. 

By mastering these techniques, traders can seamlessly incorporate the shark pattern into their trading strategy, strategically setting stop-loss orders and targeting point D for potential profits.

What are the pros and cons of the Shark Harmonic Pattern?

Like any trading strategy or pattern, the Shark Harmonic Pattern has advantages and disadvantages.

Pros:

• High Accuracy: The pattern boasts a high success rate, making it a valuable tool for traders.
• Favorable Risk-Reward Ratio: It provides clear entry and exit points, enabling traders to manage risk effectively.

Cons:

• The Shark pattern is difficult for new traders. Some trading platforms don’t have it so you may need an extra tool.
• External Plugin Requirement: To use the Shark pattern, you may need to rely on external indicators or plugins, which may not be available on all trading platforms.

How to Trade Using the Shark Harmonic Pattern?

Trading with the Shark Harmonic Pattern involves identifying the pattern and entering trades at specific points. It’s crucial to place a stop-loss order to manage risk effectively. This pattern is more suitable for short-term trading.

Conclusion

The Shark Harmonic Pattern is a powerful tool in a trader’s arsenal, offering valuable insights into trend reversals and potential trading opportunities. 

While it has a high success rate and favourable risk-reward ratios, it’s essential to approach it cautiously, especially if you’re a novice trader. 

Combining the Shark pattern with other indicators and analysis tools can enhance its effectiveness and help you make informed trading decisions. Understanding this pattern and its nuances can give you a competitive edge in the dynamic trading world.