Tips to Trade Harmonic Bat Pattern
What is the Harmonic Bat Pattern?
Scott Carney spotted the pattern in 2001 as a 5-point retracement structure. It features specific Fibonacci measures for each point in its construction. It is important to understand that D is not a point, but rather a zone where the price is likely to reverse. This is referred to as the Potential Reversal Zone (PRZ).
The primary XA leg’s B-point retracement must be less than 0.618, ideally 0.50 or 0.382. The PRZ is composed of three converging harmonic levels:
- Retracement of the major XA leg at 0.886
- Extended AB=CD chart pattern, with a focus on 1.27 AB=CD.
- The lowest BC prediction is 1.618.
The first aim might be the 382 AD retracements, and the second target could be the 618 AD retracements. A common stop-loss level is behind the X-point. Before trading, conservative traders may seek extra confirmation. Bat patterns can be both optimistic and bearish.
How to Identify the Bat Harmonic Pattern?
Fibonacci Ratios Define the Pattern
The bat harmonic pattern is based on various Fibonacci ratios. The B point, which, if it does not reach over the 50 percent Fibonacci retracement of the XA leg, distinguishes it from a Cypher pattern; otherwise, it can transform into a cipher structure.
The pattern’s market technique is applicable to all time frames and market kinds. Traders must bear in mind that applying the bat pattern market technique on lower time frames presents some problems because the pattern appears less frequently in lower time frames.
4 Legs Pattern
As previously stated, the bat harmonic pattern resembles the Gartley pattern. It contains four distinct legs labeled X-A, A-B, B-C, and C-D.
The first leg emerges in its bullish variant when the price rises strongly from point X to point A. This is the pattern’s longest leg.
The price then reverses direction and retraces 38.2 to 50% of the distance covered by the X-A leg on the A-B leg. Remember that the A-B leg can never return beyond point X. However, if it does, the pattern is deemed invalid.
The price reverses direction and rises back up, retracing anywhere from 38.2 to 88.6 percent of the distance traveled by the A-B leg. The pattern is judged incorrect if it retraces up above the high of point A.
The final and most important part of the design. This is where the bat harmonic pattern, like the Gartley pattern, concludes, and traders place their long (buy) transaction at point D.
The bat pattern, on the other hand, requires traders to place their entry trade order at the point where the C-D leg has completed an 88.6 percent breakdown of the X-A leg. Point D should ideally also reflect a 161.8 to 261.8% extension of the B-C leg.
What Does the Bat Pattern Tell Traders?
It allows traders to enter the market at a low price when the pattern completes and the trend restarts. The bat pattern differs from the Gartley pattern in that it ends at an 88.6 percent Fibonacci retracement of the X-A leg. It also has somewhat distinct inner retracements.
The harmonic bat pattern shows traders how to trade the bat pattern and start making money with a unique and fascinating method of technical analysis. The market strategy of the pattern is part of the trading system of harmonic trading patterns. The bat pattern, like many other harmonic patterns, has a bullish and bearish form.
How to Trade When you See the Bat Pattern?
Before attempting and trading the pattern, do this checklist to ensure that it is genuine. It must comprise the following essential components:
- An AB=CD pattern or a variation on that pattern
- A Fibonacci retracement of the X-A leg at 88.6 percent
- A Fibonacci extension of the B-C leg ranges from 161.8 to 261.8 percent.
The following section will look at how traders can use the bat pattern to trade. As an example, consider the bullish bat pattern. Simply reverse your orders for a bearish bat pattern.
When looking for this pattern, the first thing to look for is the impulsive leg, also known as the XA leg. We’re looking for a substantial move up or down depending on whether we have a bullish or bearish bat pattern.
The second need for an authentic bat pattern structure is a 0.382 Fibonacci retracement of the XA leg, which can go as deep as 0.50 Fibonacci retracement of the XA leg but cannot break below 0.618. This will be the pattern’s B leg.
The next step for traders is to look for a retracement of the AB leg up to at least 38.2 percent Fibonacci ratios, but not more than 88.6 percent, which will produce the pattern strategy’s third point C.
To get to the D point, discover the 0.886 Fibonacci ratios of the impulsive XA leg, which also will lead to a profound CD leg, and lastly, it will conclude the pattern’s overall structure.
The pattern’s market technique has been tested across multiple asset classes (commodities, currencies, stocks, and cryptocurrencies). Before applying this sophisticated pattern for trading, traders should take the time to back-test the bat harmonic patterns technique.
Step 1: Drawing the pattern
- Begin by selecting the bat pattern indicator from the right-hand side toolbar.
- Determine the starting point X, which can be any swing high or swing low position on the chart.
- Simply follow the market swing wave movements 0 after determining the first swing high/low point.
- You should obtain four points or four swings of high/low points that merge to make the harmonic bat pattern technique.
Step 2: Trading the pattern
The 88.6 percent Fibonacci ratio gives traders with a more consistent risk/reward ratio, which is why the market approach of the bat pattern is so popular. The 88.6 percent Fibonacci retracement, which is a very accurate market turning point, is the greatest entry opportunity.
It is advised that traders enter as soon as they reach the 88.6 percent level. The harmonic bat pattern approach rarely goes much higher than this level.
Step 3: Placing a stop-loss
Traders should usually set their protective stop-loss below point X of a harmonic bat pattern. Because any break below will negate the pattern, that is the only reasonable location to conceal the stop-loss.
Step 4: Take-Profit Margin
There are numerous ways to manage your trades, but using a multiple-take profit formula is the greatest option for this pattern. Take the first half of your profit when you reach the wave-C level, and the remaining half when we break above wave-A.
You will accomplish two things by doing so:
- First and foremost, you will ensure that you accumulate profits.
- Second, if the markets reverse, you will be stopped at BE and will not lose any money.