How to trade Harmonic Crab Pattern

The harmonic crab pattern was discovered by Scott Carney in 2000. Carney describes the this pattern as one of the most precise of all Harmonic Patterns.
The Crab is one of the extension patterns, (the other one being the Butterfly Pattern), so, the D point exceeds the X point.
Systematic tests by FxGroundworks showed Crab pattern success rates to be 82.86%-90.7%.

Harmonic Crab Pattern Structure

forex trading harmonic patterns crab
Key features to watch out for:
  • D point defined by a 1.618 Fibonacci extension of the XA
  • A deep BC Fibonacci extension between 2.24-3.618.
  • B point retracement to be .618 or less
This pattern can display rapid price action movement, often resulting in fast reversals at the PRZ.
The 1.618 of the XA leg and the BC extension (anywhere between 2.24-3.618) should form a reasonably tight cluster in the PRZ.
Get Started with Harmonics. After you've browsed through these pages and got to know more about harmonic trading, you'll probably feel like giving them a try. Just go to "Get Started with Harmonics" for a step-by-step guide. It tells you precisely what to do - and how to do it, so you don't waste any time setting up and getting started.

Harmonic Crab Pattern Trading Tips

trade forex harmonic patterns crab  
Example Harmonic Crab Pattern - Gold H1
In this example the 2.618 of the BC leg and the 1.618 of the XA leg are just 47 pips from each other. Price crossed through the 2.618 of the BC leg and got within 10-11 pips of the 1.618 of the XA leg, before reversing.
I always look for the PRZ to form near a significant Support or Resistance Area. And then use it if possible to place a Stop, which should also be the other side of the 1.618 of the XA leg.
In this example, there happens to be a significant Resistance level (not drawn on the chart above) at the 3.618 of the BC leg - 70 pips above current price - which would be a reasonable place to put a stop, if it fits with your trading rules for risk, of course.
Using a scaling-in entry strategy I would place limit orders in the PRZ, either side of the 1.618 with Stops 8-11 pips on the the other side of Resistance at the 3.618 extension level of the BC leg.
In this example, risk would be 72 for a reward of 200 - just under 1:3 risk/reward ratio.
I recommend the following pages for further details on harmonic patterns.
  • Harmonics "Cheat-sheet"
  • Gartley Pattern
  • Butterfly Pattern
  • Bat Pattern
  • Crab Pattern

Harmonics Basics


  • Trade with an Edge
  • How Harmonics Work
  • High Probability Trading
  • Low Risk Trading
  • Trading Leverage
  • Trade Identification
  • Scaling Into a Trade
  • Trade Management

How to trade Harmonic Butterfly Pattern

The Harmonic Butterfly Pattern is an extension harmonic pattern (that is - the D point exceeds the X point) and is used to trade highs and lows at key reversal points.
As an extension pattern, the CD leg extends towards a 1.272 to 1.618 Fibonacci extension of the XA leg. Note, that Fibonacci extension can even be as far as 2.618 - but beyond that then the pattern is invalid.
Systematic tests by FxGroundworks show Butterfly pattern success rates to be 87.4%-89.79%.

Harmonic Butterfly Pattern Structure

forex harmonic pattern butterfly
  • B point must be a .786 Fibonacci extension of the XA leg
  • D point should ideally be a 1.27 Fibonacci extension of the XA leg (for an early reversal ) or a 1.618. Scott Carney maintains the most critical number is the 1.27 XA leg.
  • D point must not exceed the 2.618 extension of the XA leg.
  • The Butterfly pattern must contain an AB=CD
Get Started with Harmonics. After you've browsed through these pages and got to know more about harmonic trading, you'll probably feel like giving them a try. Just go to "Get Started with Harmonics" for a step-by-step guide. It tells you precisely what to do - and how to do it, so you don't waste any time setting up and getting started.

Harmonic Butterfly Pattern Trading Tips

forex harmonic patterns gartley  
Bullish Butterfly example
The great thing about this pattern is that, because it indicates a high probability of a reversal at the end of a trend, you can get into a new trend much earlier than most other traders.
In fact it's quite likely that most other traders will still be trading the continuation in the CD direction, while you are taking a "contrarian" view, and taking the opposite trade.
The key thing to bear in mind about the harmonic butterfly pattern is when it fails, it can fail quite dramatically in a continuation of the trend in the CD direction. So careful risk management in terms of a tight stop-loss is required.
Here is a good example why a close Stop-Loss is absolutely necessary. This is a bullish butterfly pattern on the Eur-Gbp 30M chart. Price has just touched a Support zone at 0.8180.
The 1.618 XA leg is at the same level - and the 2.628 of the BC leg is just a few pips lower.
This is how I traded it:
  • Entry at 0.8183
  • Stop at 0.8163 - 20 pips away - placing it below the Support (0.8180), and 8 pips below the bottom of the PRZ. This is also below the 1.618 XA extension of the leg and the 2.618 Fibonacci extension of the BC leg.
  • Target at 0.8230
This gives a risk/reward ratio of just over 1:3 (risking $1 to make $3).
forex harmonic patterns gartley Bearish Gartley example
As the Butterfly is a test of an end of a trend, it's important to notice the momentum of price action on the CD leg, and watch out for strong momentum that could push through the PRZ and make the pattern invalid.
How the CD leg develops sometimes gives us a clue. If the CD leg is steeper than the AB leg, then a 1.618 XA extension is more likely than a 1.27 XA extension. Similarly, if there is a gap or unusually long candles in the CD leg we can also expect a 1.618 of the XA leg.
Generally speaking I only trade a harmonic butterfly pattern if there is a significant Support or Resistance zone near to the 1.27 or 1.618 Fibonacci XA extensions that I can use for placing a Stop.
Taking note of Price Action momentum and any close by Support/Resistance areas will help determine if we are dealing with a 1.27 extension of the XA leg or a 1.618 extension.
I don't trade a harmonic butterfly pattern if price is already past the 1.618 XA extension. If that happens it's likely to be a continuation of the trend in the CD direction, and therefore a reduced probability of a reversal.
I recommend the following pages for further details on harmonic patterns.
  • Harmonics "Cheat-sheet"
  • Gartley Pattern
  • Butterfly Pattern
  • Bat Pattern
  • Crab Pattern

Harmonics Basics


  • Trade with an Edge
  • How Harmonics Work
  • High Probability Trading
  • Low Risk Trading
  • Trading Leverage
  • Trade Identification
  • Scaling Into a Trade
  • Trade Management

How to trade Harmonic Bat Pattern

The harmonic bat pattern was discovered by Scott Carney in 2001. Carney maintains it is one of the most accurate patterns, and requires a smaller stop loss than most other patterns.
This is one of the retracement patterns (along with the Gartley Pattern) - and is a deep retest of Support (in the case of a bullish Bat) or Resistance (for a bearish bat) around the X level. The D level reversal will be at the .886 XA retracement in the PRZ.
If a Bat fails - it can often "morph" into a Crab Pattern where the D point exceeds the X point.
This pattern usually has an extended CD leg which is 1.27 Fibonacci extension of the AB - providing a favourable risk/reward.
Systematic tests by FxGroundworks, have shown the Bat pattern success rates to be 89%-95%.

Harmonic Bat Pattern Structure

forex harmonic patterns bat
Key features to look out for are:
  • A .886 XA retracement to the D point is necessary. The D point cannot exceed the X point - if it does, then the pattern is invalid.
  • Other Fibonacci levels should be closely grouped in tne PRZ
  • An extended AB=CD where the CD leg is 1.27 of the AB leg. Although, an AB=CD where AB and CD are the same length is acceptable, but is a minimum for the pattern to be valid.
  • Minimum 1.618 BC extension to the PRZ. Its preferable if the BC extension is 2.0. Could also be as much as 2.618.
  • The B point retracement must be less than .618 to be a valid pattern. e.g. B could be 0.5 or .382 retracement of the XA.
Get Started with Harmonics. After you've browsed through these pages and got to know more about harmonic trading, you'll probably feel like giving them a try. Just go to "Get Started with Harmonics" for a step-by-step guide. It tells you precisely what to do - and how to do it, so you don't waste any time setting up and getting started.

Harmonic Bat Pattern Trading Tips

trade forex harmonic patterns bat  
Example Bat Pattern - EUR-AUD H1
In this example, price reversed at the .886 of the XA leg precisely.
Scaling into the trade will ensure all the Fibonacci levels are tested in the PRZ. Once price has tested all the Fib levels in the PRZ, you can often expect a fast reversal, as happened in this example.
Put your Stop just above the 0.886 retracement level of the XA, for a minimum risk trade. In the example trade above, that would have worked out perfectly.
Alternatively you could place your stops above the X level, if your risk management rules permit. Above the X point will usually be a strong Support zone (for a bullish Bat) or strong Resistance zone (for a bearish Bat) - being top of a range.
I trade harmonic patterns in conjunction with strong Support and Resistance levels - and so I would look for a harmonic bat pattern to develop near the top or bottom of a range of a higher timeframe like the H1 or H4 - since that would offer a higher probability.
I recommend the following pages for further details on harmonic patterns.
  • Harmonics "Cheat-sheet"
  • Gartley Pattern
  • Butterfly Pattern
  • Bat Pattern
  • Crab Pattern

Harmonics Basics


  • Trade with an Edge
  • How Harmonics Work
  • High Probability Trading
  • Low Risk Trading
  • Trading Leverage
  • Trade Identification
  • Scaling Into a Trade
  • Trade Management

How to trade Gartley Pattern

The Gartley pattern was first discovered by H.M.Gartley and described in his book "Profits in the Stock Market" in 1935. The book sold for $1500 - and had a limited distribution. It is sometimes called the Gartley "222" pattern - due to the page number of his book that it appears in.

Gartley didn't use Fibonacci ratios in those days, but instead used 1/3 and 2/3 ratios. Larry Pesavento and Scott Carney appear to be attributed with assigning Fibonacci ratios to the Gartley, with Scott Carney defining precise measurements for it. Along with the Bat Pattern, the Gartley is a Retracement pattern. That means the X point has some significance. Namely, the X-point can be a significant Support/Resistance (Demand/Supply) level - and also the pattern is invalidated if the D point exceeds the X point.

Gartley claimed that for over 30 years this pattern was profitable in 7 out of 10 cases. This has been supported by systematic tests conducted by FxGroundworks recently, which show pattern success rates of around 90%

Harmonic Gartley Pattern Structure

 

forex harmonic patterns gartley
Bearish Gartley - and - Bullish Gartley
Key features to watch out for: 
  • Must have an AB=CD pattern that converges in the same area as the .786 Fibonacci on the XA, and also the 1.27 or 1.618 BC
  • Pattern Symmetry - ideally the number of bars in the AB leg should be the same as the number of bars on the CD leg.
  • The B point retracement ideally at .618 of the XA leg.
Generally, Fibonacci retracement ratios for the B point are .382 (for a small small correction), .618 (the preferred retracement) and .786 (large correction).

However, Scott Carney specifies that the precise XA retracements (Fibonacci retracement level from X to A) should be .618 to point B, and .786 to point D, for the most reliable results. As illustrated in the above picture.

Harmonic Gartley Pattern Trading Tips

The nice thing about the Gartley is that you don't need to try to identify the top or bottom of a trend.
That's because the Gartley is used to trade tests of highs and lows in the direction of a trend. So the ideal place to find a Gartley pattern is in a bullish or bearish channel. 

When not to trade a Gartley
I never trade Gartley's if they are not in a channel. And also, I very rarely trade a Gartley pattern if it is the first one in a channel. 
I prefer to let the channel trend get established with 3 or more touch points off the top and bottom trend lines of the channel first. (That's just in case it's a false start and not really the start of a trend). 
And, of course, I would not trade a bearish Gartley in a bullish channel - that just would not make sense at all.

Example Gartley
In the example below the channel has already been established with at least 3 touch points.
trade forex harmonic patterns gartley
Bearish Gartley example
Pattern Failure
If the pattern fails, i.e. when price continues through the PRZ, it may push through Resistance at the X-level - in which case a new pattern is a possibility.Be sure to watch out for another pattern to form - such as a Crab Pattern with the D point at a new Support/Resistance level.
After all, a failed Gartley pattern is an opportunity for another pattern to develop.

Further readng on harmonic patterns.
The following pages have further details on harmonic patterns.
  • Harmonics "Cheat-sheet"
  • Gartley Pattern
  • Butterfly Pattern
  • Bat Pattern
  • Crab Pattern

Harmonics Basics

  • Trade with an Edge
  • How Harmonics Work
  • High Probability Trading
  • Low Risk Trading
  • Trading Leverage
  • Trade Identification
  • Scaling Into a Trade
  • Trade Management

FOREX TRADING AND CARD PLAYER

Investing in Forex is not much different than placing a bet at the casino roulette table. I agree that with a certain amount of knowledge, a Forex trader can make an educated guess as to which direction his investment will go. But in most cases, no matter how much research you do and how many charts you follow, the end result is just a matter of luck.



Poker players are usually successful Forex traders. Why? Because the same abilities are applied by both.

Despite the many trading mavens who brag about their scientific theories, at the end of the day, there really aren’t any conclusive theories that work all the time for every trade. So without a system to fall back on, how can a trader make any money?


Logic and Brains

 

Let’s face it. Even a good card player must use a certain amount of logic and smarts. A professional poker player will remember which cards have already been revealed and this will give him a clue as to which cards the other players are still holding in their hands. He relies on the theory of probability and it usually works.

A seasoned Forex trader , too, will fall back on his previous experiences in order to choose how and when to place a new trade. Predictability and probability based on his own trading past come into play when deciding how to trade. Some traders want to be in the market all the time as they fear they will miss a move while others are more cautious.

Relying on your own instinct in Forex trading is often a risky decision to make, however. But that’s exactly what day traders do. They trade all the time with little thought to trends, momentum or other indicators. They make small moves and they are often profitable. But not always.


Poker Face

 

Another similarity between card players and Forex traders is the need for keeping a straight face. A ‘poker face’ is one in which a player shows no expression whatsoever so the other players don’t know which cards are in his hand. With Forex, keeping cool and not making the wrong moves is important for every trader.

Knowing when to ‘fold’ holds true in cards as well as trading. Once a card player has decided that his hand is not going to be a winner, he ‘folds’ and exits from the game. A Forex trader needs to pull out when the price is near or at the price he had anticipated and not decide at the last minute to stay in for additional profits. He will only end up losing when the price starts to drop. This demands discipline and patience. Gamblers and traders alike must know that there will be losses alongside every win.

My advice: Don’t get disillusioned. Just stay in the game.

SIMPLIFICATION CAN COUNTER MARKET VOLATILITY

With US politicians seemingly delaying their decision on raising the debt ceiling right up until the 17th October deadline, we are likely to see a great deal of volatility in the markets in the coming weeks. It appears as though many of these politicians are taking an incredible political gamble and it is one that could backfire massively. If a budget isn’t successfully passed and if the debt ceiling isn’t raised, then the US will default on its debts, sending several countries (including the US itself) back into recession.

This potential crisis is likely to create a great degree of volatility in the markets. Although the markets have been relatively stable thus far, we have now entered the second week of the stalemate and, with no end in sight; it looks as though the situation could escalate quickly.

As a trader, you need to be able to bypass as much of this volatility as possible. In order to do this, you should simplify your trading strategy. One way that you can do this is to trade in Binary Options. Here’s how Binary Options work and why they can help you by simplifying your trading strategy.

What are Binary Options? 

When you’re trading using Binary Options you’re essentially making a direction decision. The question is: will the price of the asset go up or down over a set period of time?

Once you’ve made your decision you can place your trade and, when the timeframe elapses, you’ll either win, lose or break even.


You win if the market moves in the way that you predicted, and you lose if it moves against your prediction. You will break even if the market doesn’t move, or if it returns back to where it started when you opened the trade.

For this reason, when you’re trading using Binary Options, you’re making three basic decisions:

1. What asset you would like to trade

2. What direction you believe that asset will go in (up or down)

3. How long you would like the trade to last

Traditionally speaking, Binary Options are short term gamble investments and they can last anywhere from 30 seconds to a year.

How do Binary Options Counteract Market Volatility? 

Most investors are attracted to Binary Options because of their fixed risk element. This has led to Binary Options becoming increasingly popular as a trading option.

Many so called ‘traditional trading options’ have an incredibly high risk element and some potential investors are put off as a result. The win-lose nature of Binary Options, however, means that there are only three potential outcomes and you’ll know your potential gains or losses beforehand.

For this reason, many traders use Binary Options to trade in both ‘bullish’ and ‘bearish’ markets that have a high degree of volatility. This is because traders can get ‘in and out’ of markets quickly if they see a pattern emerge without risking their long term strategies.

To conclude, Binary Options are a great tool for people who want to trade in volatile markets like the ones that are currently emerging due to the US debt crisis. This is because of their simplicity and their limited risk.

FOREX TRADING IS A BUSINESS

I agree that you should think about your trading (FOREX or otherwise) the same way as any other business, If we assume (retail) traders are in business for themselves then some prior experience as entrepreneurs (bringing a startup based on an original idea to the point where it attracts outside investment or triggers the exit plan) may help, given that in general (according to http://www.statisticbrain.com/startup-failure-by-industry/), 44% of businesses fail in the first 3 years, 71% after 10 years.

According the link the top reasons for failure of a business include "Incompetence" (46%), "Unbalanced Experience or Lack of Managerial Experience" (30%), followed by "Lack of Experiences in line of goods or services" (11%).

Given that up to 98% of retail traders fail, IMO some explanation of the difference of 20% or so between "regular business" failure and trading failure should be debated. Forex trading can be as simple or as complicated as you want it to be. In the beginning forex trading seems like it is simple. It seems like your only job as a trader is to pick what direction a currency pair is going to go and collect your profit. But 98% of people fails show that trading is very difficult. And not everyone is made for it..

Given that most businesses are started by someone who loves the product I suggest retail traders fail because they love money ("money" once removed from anything worth owning) and love of money shunned by at least one religion for very good reasons.

The most important thing in trading is Patience and Discipline which is more than 80% of trading, specially in Forex as if you miss trade there will always be another to come to your level or strategy entry point, even though the pro Traders know this but it is difficult to master. Trading is about strategy and sticking to your trades, no chopping or changing, whether you use elliot wave or simple point and figure charting, there are those that have an ability to defy the norm. Few important trades you must not take revenge trades and doubling trades to get you out of losses, these can be very dangerous which takes you into the gambling side of trading. The rest 20% is the actual trading using indicators strategies and confluences.

Also trading as an individual is much harder and less successful than if you trade for a fund or a bank as it comes down to money and the ability to support your position, many small traders can get the end result correct but do not have the capital to get there. Many of the so called Forex traders are trading without the needed capital. For example, if you are trading with $10,000, 3% target is about $300, or on average $15 for each day of the month (ca. 20 working days), which may not sound as much to a trader that is sitting in the front of her computer for a couple of hours every day of the month. Which again may mean that she may be open for some ideas that promises a bit better ROE.
Investing in anything - be it real estate, stocks, commodities, FOREX, etc. - gets a bad rap from people who don't bother to learn anything about it before making their "pronouncements". If you do your homework in order to understand the market you're investing in as well as the particular vehicle you're going to use, investing is not gambling. Sure, there is an element of risk but that's true of any type of venture involving money. It doesn't matter if you're talking about starting a business, investing in the security of your choice or any other endeavor that involves the potential of monetary gain or loss. If you don't learn your market and develop a sound strategy for success, you're going to lose. If don't do those two essential steps before you throw your money into the ring, you ARE gambling and almost assured to lose.

In my opinion, you need 2 strengths to be among the 2% survivor list:
* You need an edge. Do not enter a trade if you do not have more than 50% chance of gain, this is why I never play casino. If you do not have that edge, your broker holds it: his house edge are the transaction costs (spreads). Your edge can hardly be built with a single indicator, However, if you start to combine them and add filters, you might be above 50% on the long term.

* Even with a great edge, control your leverage, otherwise you are likely to hit the point of no return and never exit a major drawdown! Several losses in a row will hurt you, irreversibly! Hollow a major drawdown is always a challenge. Do not use high leverage even if your trading station allows it! My recommendation for max leverage is the standard 1:100.
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