How to profit with the Harmonic Shark Pattern?
Harmonic Pattern Trading have gotten more and more popular across institutional and retail traders over the past few years due to increased exposure in the media as well as the overall effectiveness of this trading system. In fact, this is also one of the few trading methodologies which has been constantly updated over the years. Scott Carney just launched the 3rd book titled “Harmonic Trading Volume 3: Reaction VS Reversal” back in October 2016 which added on a lot of depth to what he shared in his previous books. (Scott penned his first book “The Harmonic Trader” back in 1999) In this article, I’m will reveal how to draw and profit from this relatively lesser known Harmonic pattern known as the Shark pattern which compromises about 60% of my personal trade setups right now.
Do not confuse this with the Cypher pattern, which looks similar to the Shark pattern but was not created by Scott Carney. In fact, most Cypher patterns will evolve into Shark patterns eventually and learning how to trade the Shark pattern will actually help you to increase your winning percentage and your average risk to reward ratio in your trades. I will also touch on execution strategies based on theories I share with my followers every week in my videos and webinars at HarmonicForex.com.
What is a Shark Pattern? The Shark pattern is relatively new Harmonic Pattern created by Scott Carney in 2011, where he used a mixture of Elliot Waves theories and Fibonacci numbers to create this brand new pattern with relatively high success rate. Based on my personal back testing on my tradingview account, I get almost a 50% success rate when trading this pattern. 50% is amazing if you factor in the high risk to reward ratio I get on my trades. This means, if my particular setup risks 50 pips, the reward is usually 75 pips to 200 pips. (1:1.5 to 1:4) Take this example on AUDUSD posted in March 2017 as an example.In this example, I risk 40 pips to make 220 pips. This trade was floating for a total of 19 days before it reached my 2nd profit target. EP: 0.7740 SL: 0.7780 (40) TP1: 0.7620 (120 pips) TP2: 0.7520 (220 pips)
(Before) AUDUSD –Shark Pattern Completes (21st March 2017)
(After) AUDUSD –Shark Pattern moves to profit target (8th April 2017) +220 pips!
Interesting? Let me go through with you the basics on how to draw this pattern. This is how it looks like.
Pattern Basics
1. A qualified Shark pattern consists of an impulse leg (XA), followed by a retracement leg (B) that has no specific value. 2. That is followed by a continuation leg (C) that must at least reach the 113% Fibonacci extension of the BA leg without exceeding the 161.8%. 3. Next, a Fibonacci retracement of X to C is drawn. The qualified Shark pattern must reach 88.6% of the XC Fibonacci retracement and it cannot exceed the XC 113% extension.
4. Next, draw the BC Fibonacci extension. The key to this pattern is the 161.8 extension of the BC Fibonacci extension. It must reach a minimum of 161.8 and it cannot exceed 224% 5. The area where the BC Fibonacci extension and the XC Fibonacci retracement overlaps is known as the PRZ. This is the zone where we look to enter our trades. This Green zone (PRZ) is where the BC extension 161.8 and the XC retracement 88.6 overlaps.
This point C should fall within BA extension 113% to 161.8%
Q&A A common question I get from my followers is, if the candle wick exceeds any of the above stated requirement, is the pattern still valid? The answer is yes, in fact, even if the candle closes just slightly above/below the boundaries, the pattern is still valid. Scott advocates a 3% rule where the candle close should not exceed the boundaries by more than 3%. However, I realized that using % is not that easy to calculate for traders in real time. Therefore, my advice is to use 10 pips as a gauge when it comes to boundary violation.
Executing the trade when the price reaches the PRZ Now that you understand how to draw and qualify the pattern, I will share how to execute this pattern across 3 scenarios.
Earlier, I mentioned drawing a Fibonacci retracement of X to C and the Fibonacci extension of B to C to qualify the D point of the Shark pattern. Scenario 1 When the BC extension reaches the 161.8% level before the XC 88.6%, we look to execute the trade off the XC 88.6% level (Black Line). BC 161.8% XC 88.6% Look to enter your trade after the XC 88.6% is reached. Scenario 2 When the BC extension reaches the 161.8% level after the XC 88.6%, we look to execute the trade off the XC 100% level (Green Line). XC 88.6% BC 161.8% XC 100% Scenario 3 When the BC extension reaches the 161.8% level after the XC 100%, we look to execute the trade off the XC 113% level (Blue Line). XC 100% BC 161.8% XC 113%
Entry Take note that in all 3 scenarios, we should look for price action after these levels are tested before we execute our entry. Do not use a pending order to enter these Harmonic Pattern setups as that will decrease the success rate easily by 20%. Monitor for these setups instead for higher success rate. 1. Wait for a candlestick reversal that closes above/below the PRZ zone before entry 2. Wait for a pin bar/hammer candlestick to form after the PRZ is completed before entry. (I love long wick candles before I enter, it really increases the success rate of Harmonic Pattern trades) 3. I usually combine the RSI indicator with patterns. Always wait for the RSI to leave the overbought/oversold zone before entry
Take Profit
The profit target for the Shark Pattern is as follows. TP1: Fibonacci retracement 50% from C to D leg TP2: Fibonacci retracement 88.6% from C to D leg
Stop Loss
The stop loss level for the Shark Pattern is as follows. I use a different buffer for different timeframe setups. I only trade these 3 timeframes.
H1 Buffer (10 pips) H4 Buffer (30 pips) Daily Buffer (50 pips)
This serves as a guide only and it might not work for every currency pair as the volatility is different. 70% of the currency pairs that I trade can work well with this buffer. Scenario 1: SL is set XC 100% +buffer or -buffer
Scenario 2: SL is set XC 113% +buffer or -buffer Scenario 3: SL is set XC 127.2% +buffer or -buffer More Shark Pattern Examples In 2017 alone, I have traded more than 10 Shark pattern setups. I will share with you 3 more good examples which I document on my tradingview account for you to understand this pattern better. 1. US Dollar Index (31/3/2017) http://bit.ly/2odI4VT 2. USDJPY (12/3/2017) http://bit.ly/2oc0V1U 3. GBPAUD (10/3/2017) http://bit.ly/2nPy1mu
Final Thoughts I hope that after reading this guide, you will have better understanding of the Harmonic Shark pattern. I highly suggest not to trade this pattern on timeframes lower than the hourly (H1) timeframe as that will significantly decrease the success rate of the pattern. No matter what powerful strategies you learn, always remember to do your own due diligence. That means take whatever statistics I tell you with a pinch of salt. To gain confidence in a trading strategy and find out the overall effectiveness based on your trading and mental habits, you should do these 1. Back test and forward test at least over a period of 6 months or over 300 different trade setups (Demo account before live account is recommended) 2. Record your trading results and document your thoughts over this period 3. Risk not more than 2% on every trade setup
The same strategy might not always deliver the same results to 2 separate individuals, our psychology and reaction to drawdowns and profits are not the same. Never stop learning and keep asking questions, I will be more than willing to answer any of your trading related questions.
About the Author
Terry Tan is the founder of HarmonicForex.com, the only trading academy in Asia accredited by Scott Carney to teach Harmonic Trading. Terry started trading 9 years ago while he was doing his national service. He has 6 years of experience trading Harmonic Patterns and has been personally mentored by Scott Carney back in 2016. Terry hopes to impart good and realistic trading education through his academy. Till date, he has mentored over 500 students with his team over the past 4 years throughout Asia. He can be reached at
[email protected] Download a copy of “The Harmonic Trader” Ebook and attend FREE webinars every Wednesday by Terry. Click to download
