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Bat Harmonic Pattern - Advanced AnalysisIn this series of chart patterns, we have taken a look at the more traditional ones. However, we have not yet discussed harmonic patterns. Harmonic patterns form a part of the numerous chart patterns available for the identification of reversal points. The practice of trading using harmonic patterns is often defined as "Harmonic Trading". We felt like it was an appropriate time to discuss the popular bat harmonic pattern, defined as "The most accurate pattern in the entire harmonic trading arsenal" by Scott M. Carney (1). "Suspicions in thoughts are like bats among birds." - Translated from Francis Bacon. 1. Introduction Unlike most traditional chart patterns, these patterns do not require breakouts of the price to be traded and involve the usage of precise Fibonacci ratios (highlighted below) for the identification of harmonic patterns. This makes harmonic patterns less subjective and pretty spooky. Wow. 1.1 Fibonacci Ratios Fibonacci ratios are key components of harmonic patterns. Fibonacci ratios are obtained from the Fibonacci sequence, whose n th element is obtained by adding the two previous numbers of the sequence, that is: Fib(n) = Fib(n-1) + Fib(n-2) The sequence is as follows: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233..., and exhibits various characteristics. One characteristic of interest is given by the ratios between elements in the sequence. The ratio of one element in the sequence with the following one approximately equals 0.618, while the ratio of one element in the sequence with the previous one approximately equals 1.618. These two values are often defined as golden ratios, with 1.618 being denoted as "Phi" (upper-case P) and 0.618 as "phi" (lower-case p). The ratio between elements separated by two positions returns 0.382 and 2.618 respectively, calculating the ratio using a higher separation would return the series of Fibonacci ratios. These ratios are also given by raising the golden number with specific exponents. 0.618^4 = 0.146 0.618^3 = 0.236 0.618^2 = 0.382 0.618^0.5 = 0.786 0.618^0.25 = 0.886 0.618^0 = 1 The rationale behind the usage of Fibonacci ratios with harmonic patterns (and other methodologies in general) is given by the presence of the Fibonacci Sequence in nature and certain organisms and structures, but more importantly in human behavior. If security prices reflect investor behaviors, it seems logical to find a connection with Fibonacci numbers. This is a common rationale used by technical analysts to justify the usage of Fibonacci ratios. A few studies aimed to explain a potential connection between the Fibonacci sequence and financial markets and evidence obtained by Bhattacharya & Kumar provide further incisive research on this connection (2). 2. Harmonic Bat Patterns The bat harmonic pattern is built from 4 segments connecting points X, A, B, C, and D, each one located at a local maxima/minima of the price. The relative distance between the segments is used to determine the validity of a bat pattern; these rules are defined as follows: 1 - Segment AB retraces within 38.2% and 50% of the XA segment (some less strict conditions only require a retracement within 38.2% and 61.8%). 2 - Segment BC retraces within 38.2% and 88.6% of the AB segment. 3 - Segment CD retraces within 161.8% and 261.8% of the segment BC. 4 - Segment AD is approximately equal to 88.6% of segment XA. For the pattern to be valid, the vertex given by point C must be confirmed. It is also interesting to note that the bat pattern can possess an internal AB = CD pattern. A reversal is more likely to occur within the "potential reversal zone" (PRZ). Traders can have different methods for identification however Fibonacci retracements are commonly used, with an extremity of the PRZ located at 88.6% of the internal retracement of XA and another at 161.8% of BC. Another method identifies the PRZ within 78.6% and 100% of the internal retracement of XA. Some traders wait for additional confirmation before entering a position such as the occurrence of internal reversal patterns, oscillator divergences, or for the price to evolve outside the PRZ such that it implies that a reversal is occurring. 3. Stop Loss & Take Profits Various techniques exist to set take profits and stop-loss levels during the formation of a bat pattern. Some traders place the stop loss at or a few ticks below X, which can lead to reduced risk but a higher risk of a premature trigger of the stop-loss. The usage of a very tight stop loss is mentioned by Scott M. Carney. A take profit can be set at point A. Additional Fibonacci retracements might be used for partial exits. 4.Practical Examples Bearish Bat pattern on USDJPY15, we apply Fibonacci retracements to the segment XA and use the levels 0.5, 0.382, 0.236 as partial take profits while level 0 exits the entirety of a position. Bullish Bat pattern under completion on ERGOUSDT 4h, the price breaks the level situated at point B is a good sign for a potential of reach of the PRZ. 5. Observations Oscillator divergences occurring when the price is within the PRZ can be an additional confirmation of a potential reversal occurring. We found no studies proving data that the bat harmonic pattern is superior to other harmonic patterns. One study by Krzysztof Bednarz highlights the profitability of the bat pattern in a trading period of 27 days (3). Bulkowski shares statistics on how often price turns at point D (4). For Bullish Bats, the price reverses at point D 91% of the time, for Bearish Bat patterns the price reverses at point D 86% of the time. Super spooky... References (1) Carney, S. M. (2010). Harmonic Trading, Volume Two: Advanced Strategies for Profiting from the Natural Order of the Financial Markets. Pearson Education. (2) Bhattacharya, S., & Kumar, K. (2006). A computational exploration of the efficacy of Fibonacci Sequences in technical analysis and trading. Annals of Economics and Finance, 7(1), 185. (3) Bednarz, K. (2013). Taking investment decisions on the futures contracts market with the application of Bat harmonic pattern – the increased efficiency of investment. (4) Bulkowski, T. N. (2021). Encyclopedia of chart patterns. John Wiley & Sons.
BITSTAMP:BTCUSDEducation
by LuxAlgo
43
Cryptocurrency HBAR (Hedera Hasgrash) Very BearishA short strategy for cryptocurrency HBAR (Hedera Hasgraph) which has tested support multiple times and might break down at any time. A descending Triangle also being formed at 4H timeframe and support on 1H and 30 mins candle. Triangular descending is a strong pattern and results in break down. It has also consolidated well within range in the last 2 days. 50-EMA and 200 EMA also giving resistance consistantly. Do not place a tight stop loss as it might come back for a Retest and then rally down. You can even shot at trend line resistance Trade well and mitigate risk properly :)
Short
by raghav_tradeit
Gold to soften before FOMC AnnouncementAt the current trajectory of the market, the price favors USD before FOMC in hopes of the dovish words 'tapering' to proceed. We've seen the market shift into a risk-off mode where funds have run to the yen as a safe haven. As for gold, I see an opportunity for bulls to reverse as high-impact news hits the floor. Gold has currently hit a resistance point with a nice pinbar forming on H1 Timeframe. A double top formation at this key level will determine my expectation of price to proceed downwards. Sell XAU 1777.15 SL 1782.00 TP1: 1767.10 TP2: 1761.10 TP3: 1745.10 Confluence Details: 1. Rejection off resistance key level at 1777.00 2. Bearish Fakeout Pattern in motion 3. H4 0.5 Fib Retracement level 4. H4 1.414 Fib Extension Level 5. Double Top at 1777 needs to form in order for trade to be valid (I won't enter without this) Also bear in mind, the market has the potential to form a LL at 1767.10 and extend higher if there is enough buying pressure. Taking all profits at this is the safest option. Other than that, Happy Trading FOMC!
OANDA:XAUUSDShort
by Altconomist
2
Short-trend in CORNIt seems like a bearish flag pattern, which is building up in the Corn futures. So this could result in another short-term bearish impulse. According to the seasonality charts we have at the end of Sep/Oct (depends on which charts you take into consideration) a seasonal low. According to the CME, it's not expected before Nov/Dec (New Crop months). My personal long-term view on the agriculture commodities is of course very bullish - but we can go still one level lower over the next months ...
CBOT:ZC1!
by p4917
POSSIBLE HEAD & SHOULDERS (bearish pattern) FUNDING IS POSITIVE Hello traders, It's been quite a crazy 24 hours in the crypto markets. Yesterday we had the YouTube conference with Jack, Elon, Cathie and some other random guy. The result? EVERYONE is calling for a reversal and expecting bitcoin to push much higher and that's exactly what they wanted. A coordinated conference to provide liquidity, retail is now filling big money's bags and wouldn't be surprised to see lower levels from here on out. $30,888 - $31,111 would be an area of interest as it's a good place for market structure to prove itself, but also around the same area where 25x longs get liquidated. Head and shoulders weren't designed to be printed so everyone and their mother see's it, that would be a textbook pattern and never usually happens. I'll give it a few hours to play out and see if we get the right shoulder, if we do I'm sure we'll be trading below $32,000 by the end of today/tonight depending on how price action develops.
BITFINEX:BTCUSDShort
by YurloTrades
$TRX/USDT 2h (Binance Futures) Rising wedge facing resistanceTron has recovered nicely but could be preparing for another leg-down while crypto market is still uncertain. Current Price= 0.08128 Sell Entry = 0.08232 - 0.08664 Take Profit= 0.07193 | 0.06525 | 0.05570 Stop Loss= 0.09456 Risk/Reward= 1:1.25 | 1:1.91 | 1:2.86 Expected Profit= +29.72% | +45.52% | +68.14% Possible Loss= -23.86% Fib. Retracement= 0.382 | 0.618 | 1 Margin Leverage= 2x Estimated Gain-time= 1 week
Short
by TradingOn
2