How to trade CRAB Harmonic Pattern
There are three basic steps in spotting Harmonic Price Patterns:
- Step 1: Locate a potential Harmonic Price Pattern
- Step 2: Measure the potential Harmonic Price Pattern
- Step 3: Buy or sell on the completion of the Harmonic Price Pattern
By following these three basic steps, you can find high probability setups that will help you grab good profits.
Let’s see this process in action!
Step 1: Locate a potential Harmonic Price Pattern
I have shown Daily chart of Ashok Leyland and market the potential harmonic pattern in forming
At this point in time, we’re not exactly sure what kind of pattern that is. It LOOKS like a three-drive, but it could be a Bat or a Crab…
Step 2: Measure the potential Harmonic Price Pattern
Using the Fibonacci tool, a pen, and a piece of paper, let us list down our observations.There are many Amibroker AFL and Software Available which can do the trick for you.
- AB= retrace between 0.382 – 0.618 Fibonacci Retracement of XA leg;
- BC= minimum 38.2% and maximum 88.6% Fibonacci retracement of AB leg;
- CD= Poses a target between 2.24 – 3.618 Fibonacci extension of AB leg or an ideal target of 1.618 of XA leg.
This pattern qualifies for a bullish CRAB pattern, which is a strong buy signal.
Step 3: Buy or sell on the completion of the Harmonic Price Pattern
Once the pattern is complete, all you have to do is respond appropriately with a buy or sell order.
In this case, you should buy at point D, which is the 1.618 Fibonacci extension of move CB, and put your stop loss a couple of points below your entry price.
Is it really that easy?
The problem with harmonic price patterns is that they are so perfect that they are so difficult to spot, kind of like a diamond in the rough.
More than knowing the steps, you need to have hawk-like eyes to spot potential harmonic price patterns and a lot of patience to avoid jumping the gun and entering before the pattern is completed.