Trading Bearish Shark Patterns by Suri Duddella Harmonic Patterns foundation and trading concepts were laid by H.M. Gartley in 1932. H.M. Gartley wrote about a 5-point pattern (known as Gartley) in his book, Profits in the Stock Market. Few other authors who have worked on this pattern theory, but the best work to my knowledge is done by Scott Carney in his books of “Harmonic Trading.” Scott Carney also invented patterns like 'Crab,' 'Bat,' 'Shark,' '5-0' and added real depth of knowledge for with Fibonacci ratios and established rules on how to trade their trading rules, validity and risk/money management. His pioneering work is truly impressive, and the trading world should thank him immensely as he has opened newer trading styles and careers for many traders. The primary theory behind Harmonic patterns is price/time movements which adhere to Fibonacci ratio relationships and its symmetry in markets. Fibonacci ratio analysis works well with any markets and on any time-frame charts. The basic idea of using these ratios is to identify key turning points, retracements, and extensions along with a series of the swing high and the swing low points. The derived projections and retracements using these swing points (Highs and Lows) will give key price levels for Targets or Stops. Pattern Identification Harmonic pattern identification can be a bit hard with the naked eye, but once a trader understands the pattern structure, it can be relatively easily spotted by Fibonacci tools. The primary Harmonic patterns are 5-point (Gartley, Butterfly, Crab, Bat, Shark and Cypher) patterns. These patterns have embedded 3-point (ABC), 4-Point (ABCD) patterns. All the price swings between these points are interrelated and have harmonic ratios based on Fibonacci. Patterns are either forming or completed 'M' or 'W' shaped structures or combinations of 'M' and 'W', in the case of 3drives. Harmonic patterns (5-point) have a critical origin (X) followed by an impulse wave (XA) followed by a corrective wave to form the 'EYE' at (B) completing AB leg. Then followed by a trend wave (BC) and finally completed by a corrective leg (CD). The critical harmonic ratios between these legs determine whether a pattern is a retracement based or extension based pattern and defines its names (Gartley, Butterfly, Crab, Bat, Shark and Cypher). One of the significant point to remember is: All 5-point and 4-point Harmonic patterns have embedded ABC (3-Point) patterns. All 5-point Harmonic patterns (Gartley, Butterfly, Crab, Bat, Shark, Cypher) have similar principles and structures, and they differ by their ratios to identify them and locations of key nodes (X, A, B, C, D) but once one of the patterns is understood it may be relatively easy to grasp knowledge of others. It may help for traders to use an automated pattern recognition software to identify these patterns than using naked eye to find or force these pattern identification.
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