The Shark harmonic pattern was discovered by Scott Carney in 2011. Simply, this Shark harmonic pattern is a five-leg reversal pattern that completely depends upon the powerful 88.6% retracement level and the 113% reciprocal ratio. And there is an Extreme Harmonic Impulse Wave, which indicates the M letter for a bullish shark pattern and W indicates a bearish shark pattern. Like other harmonic chart patterns, this shark harmonic pattern formation should meet many Fibonacci ratios to be valid. It helps you to predict future price movements using past price swings and geometric shapes. Further, in this blog, let’s see Shark Harmonic pattern in Forex trading.

How to Employ Shark Harmonic Pattern in Forex Trading?

First, you need to know the characteristics to identify the shark harmonic pattern.  The shark pattern has a five-point price swing structure (O, X, A, B, and C). With four legs labeled strange than another harmonic candlestick pattern (OX, XA, AB, and BC). You need to spend a lot of time and effort drawing the shark pattern manually to calculate the ratios on your own. You can also employ a built-in harmonic shark indicator available on some popular trading platforms.

Always remember that, while charting software does not come with a shark harmonic indicator. You can use the XABCD pattern tool. There are some conditions in the shark pattern to validate. AB leg retracement between 113% to 161.8% Fibonacci ratio of XA leg. The BC leg extends beyond the O point by 113% Fibonacci ratio of the OX leg. This BC price swing is an extension of 161.8% to 224% of the XA wave. The length from O to C should be 88% to 113%. And the CD leg is at 50% of the Fibonacci retracement level of the BC leg.

How to Draw the Shark Harmonic Pattern?

Drawing the shark harmonic pattern may be done easily using basic drawing tools available on any trading platform. But drawing the shark pattern takes lots of time and effort. So, it is best to use a custom built-in shark harmonic indicator. That automatically draws the lines with the appropriate Fibonacci ratios. Those using MetaTrader5, have the option to purchase the harmonic shark indicator and can install it on your MT platform.

These shark harmonic patterns may be either bullish or bearish. After the pattern is formed at the end of a trend and has the specific Fibonacci ratios to confirm the pattern, then the formation is indeed a harmonic shark pattern.

How to Trade Forex Using Shark Harmonic Candlestick Pattern?

Like every harmonic chart pattern, the trading shark pattern has the same goals. If you are looking for a trend reversal in the price action following four price swings and the assumption that the price is about to reverse. In trading techniques, the difference in entry-level is taken on point C rather than point D. Take profit is placed on point D. And also the shark pattern has another well-defined stop loss level at the 113% Fib level XA leg. Simply, those who are planning for short-term gains can use a shark harmonic pattern. Rather than trying to capture long-term moves.

Find an Entry Point in Shark Pattern

You may wish to enter a trade at point C while trading in a shark harmonic pattern. This is because the O to C retracement can be between 88.6% to 113%, thus, soon you can see that this condition is satisfy, and you can enter a buying trade at point C. And before doing this, it’s also important to make sure the reversal with other trend reversal technical indicator. The RSI and MACD are technical indicators that help you identify whether the existing trend is losing momentum.

Next, you should draw a Fibonacci retracement from the X to A point. While trading the shark pattern, the entry point is at 88.6% of OX. This is an exhaustion level where traders cannot push prices lower and find the possibility of a price reversal.

Set Stop Loss on Shark Pattern

The first step to take after entering a trade is to set a stop loss. There are several methods to find where the stop loss should be place with the shark pattern. The most common method is to place a stop loss at point C, a high stop loss that can be trigger very easily. The basic concept behind placing the stop loss at this level is that a break below the D point will automatically invalidate the Shark pattern. Also, you can use the protective stop loss at the 113% Fibonacci extension of the XA leg if you prefer a flexible stop loss level.

How to Set Take Profit Target at Shark Pattern?

You should set a target for profits, once you make a profit, another advantage of the shark harmonic pattern is that it has a proper take profit target of the 50% to 61.8% Fib ratio of the BC swing leg. The following TP levels can be place at the A and C levels. Simply, the shark pattern offers a well-defined entry point, stop loss, and take profit target. This harmonic shark pattern provides a better risk-reward ratio. But, this shark harmonic pattern lacks to offer a chart pattern for beginners. It also requires an external plugin, which is not available on every trading platform.

Final Thoughts

The harmonic shark formation is less familiar among the people compare to some of the more widely traded structures within this category like the Bat pattern, the Gartley pattern, the Butterfly pattern, and the AB=CD pattern. But, this harmonic shark is a legitimate one and worth trading under the right conditions. Those traders who are interest in trading shark patterns or another related harmonic pattern can consider the handful of harmonic indicators and software programs in the market that makes the identification of these patterns easy and more reliable. Even though some of these products do come at a cost, they will help you to save a lot of time in the scanning process.

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