The Shark Pattern
Kriss, Passionate Developer, Trader
CEO of AzurItec sas – Founder of Ninja-Addons.com
Among harmonic patterns, the Shark pattern is a 5-point reversal structure that Scott Carney discovered in 2011. It is a combination of Fibonacci numbers and the Elliott Wave theory.
Essentially, the Shark consists of an impulse leg and a retracement leg, with the latter not having any particular value. The continuation leg needs to have a 113% Fibonacci extension of BA, but it should not exceed 161.8%.
The Shark pattern helps retest prior support and resistance points as a strong counter-trend reaction. It is a temporary extreme structure that takes advantage of the extended nature of the Extreme Harmonic Impulse Wave.
Description of the Pattern
The Shark pattern is similar to the Bat Pattern, with the exception that point C exceeds the BC leg. A comparatively lesser known harmonic pattern, it is effective if executed properly.
A typical Shark pattern consists of:
- an impulse leg (XA) that is followed by a retracement leg (B) without any specific value. This is followed by a continuation leg (C) that has to reach at least 113% Fibonacci extension of BA leg without crossing 161.8%.
- Then, you need to draw a Fibonacci retracement of X to C. The pattern must reach 88.6% of the XC Fibonacci retracement and cannot cross the XC 113% extension.
- The BC Fibonacci extension needs to be drawn next. The key to this pattern is the 161.8 extension of the BC extension. It must reach a minimum of 161.8 and cannot exceed 224%.
- The area in which the BC Fibonacci extension and XC Fibonacci retracement overlap is called the Potential Reversal Zone (PRZ). It is the zone where you want to enter trades.
- The PRZ is defined by a 0.886 retracement of the initial leg and a 1.13 reciprocal ratio of the initial leg.
Even if the candle closes slightly above or below the boundaries, the pattern is still a valid one. Scott Carney advocates a 3% rule whereby the candle close should not cross the boundaries by over 3%.
Rules of Trading in this Pattern
The target stops can be various retracements of the CD leg, all the way up to C itself. There are different means of determining the most appropriate position for the target stop. You could put it beyond the next structure level after point D, or opt for the 1.41 extension of XA.
As a conservative trader, you may want to look for additional confirmation before entering a trade based on an indicator value and a specific candlestick pointing toward a reversal or a combination of other methods. The Shark pattern is as effective as other harmonic patterns. One of the common variations on trading this pattern is to complete the last leg.
The Shark pattern is a comparatively new harmonic pattern with a relatively high success rate. It demands immediate change in the character of stock price action immediately following pattern completion.
The extreme harmonic impulse wave to be utilized depends on the location of the 88.6% level.
The pattern requires a keen observation and an active management to capture the high probability profit segments.
Did you know ?
One fantastic thing with advanced trading software like NinjaTrader 8, is that it is possible to create indicators that automate the pattern recognition so you can focus on the trading decision.
This is the case of the Harmonic Indicator that we developed at NinjaAddons.com.
With this tool, you can visualize 9 Harmonic patterns, such as : ABCD, Bat and Alt Bat, Butterfly, Crab and Deep Crab, Cypher, Gartley, Shark, Five-O and Three Drive patterns.
From the toolbar you can configure everything and see the results in real-time without having to reload the chart, configure audio alerts to know when a pattern is detected.
Finally, it is also compatible with the Market Analyzer to build powerful market scanners, and even create your own strategies thanks to the fully exposure of patterns from the code (for experienced programmers).
However, always keep in mind that it is namely you and not the indicator which decides when to trade in the market. Instead of robot trading, you need to take inputs from the pattern and exercise your better judgement to reap the maximum benefit.