Within a snap of a finger, the prices of your securities could either rise or plummet. It’s the common high-risk high reward situation.
But, one of the things that keep investors feeling safe about their shares is trading indicators.
An example of this would be the Crab Harmonic Pattern.
The Crab Harmonic Pattern comes from the harmonic pattern family which uses statistics through Fibonacci patterns. Each trading point will be used to help you predict the price movements of your security.
Allow us to teach you how.
What are Crab Patterns?
A crab pattern is a reversal pattern that consists of 5 points. It is one of the most accurate technical analysis patterns by Scott Carney in 2000.
As mentioned earlier, the crab pattern is one of the many patterns that belong to the Harmonic pattern family. Other famous patterns are named the Gartley, butterfly, and bat.
The harmonic patterns family has a precise 5-point key occurrence. These points have a formation in which the Fibonacci ratios will help you confirm their validity.
Crab patterns have a letter M-shaped formation with a slightly sharper end. Which is a bit symbolic of a crab.
Identifying a crab pattern in your candlestick chart is a signal to join the volatile market. Doing so, especially during extreme lows and highs, will allow you to profit greatly.
Of course, this is just a prediction. Always remember that forms of technical analysis have no guarantee over your security.
How to Trade the Crab Harmonic Pattern
Let’s dive deeper into the earlier paragraph where we discussed what to do after identifying a crab pattern.
Since crab patterns are signals to either buy or sell a security, it’s crucial to be certain that the pattern you’re seeing is true.
Some patterns may seem like a crab but are an entirely different formation instead. Just like how the crab formation is very similar to the butterfly. And you would not want to risk your security over a mistake.
So, how exactly do you identify a Crab Harmonic price pattern?
A crab formation that adheres to the Fibonacci retracements and ratios is guaranteed to be accurate. Fibonacci matches form the validity of formations you see in your candlestick chart.
In addition, the five points the crab pattern is made of are named X, A, B, C, and D. These come with another to form legs, for example, “crab leg AB” or “crab leg XA”.
Now, these points and legs must retrace/ reach a specific length or percentage to confirm the validity of the formation.
It’s easy to mistake a butterfly or bat formation for a crab formation. However, to avoid doing this, you must keep in mind that the crab formation has a distinctly elongated end extension.
Once you’ve identified the formation and measured its potential, it’s your time to enter the market.
Depending on whether it’s a bullish crab or a bearish crab pattern, you will either buy or sell securities. You will be doing so since the crab formation predicts either a price hike or fall, which you would best take advantage of.
How to Identify and Use the Crab Candle Pattern in Forex Trading?
The Forex trading market is a foreign exchange or global marketplace. It’s commonly where national currencies are exchanged between traders and investors.
These are the most liquid asset markets in the world. This is due to its incredible worldwide reach of course. That being said, taking advantage of crab pattern forex exchanges should benefit you greatly.
And here’s how you can do that:
The hardest part of using the crab pattern in forex trading is identifying and validating its formation.
Just like we discussed earlier, it’s easy to mistake it for other things. So here are a couple of conditions your crab formation needs to fit into to be validated.
First of all, the first and second crab legs should retrace back by 61.8%. The third leg should be way back by 261.8%. And the entirety of the retracement should be 161.8%.
These patterns should also have unique ratios occurring within them.
Now, let’s identify our next action based on the orientation of the crab formation.
There are two kinds of crab harmonic patterns: bullish and bearish.
A bearish crab pattern follows the shape of the letter W, with its end leg still distinctly extended. This indicates that your securities’ prices will encounter a huge plummet, and the best thing to do is to sell it to avoid loss.
On the other hand, a bullish crab is more of an M than a W. This is an indication to buy more from the market since the prices are soon to increase.
The Crab Pattern — Pros and cons
Trading with the use of the Crab Harmonic pattern comes with a set of advantages and disadvantages. This should not discourage you, of course, no technical analysis tool is perfect.
The crab harmonic pattern is a high-risk high-reward system. Which is something that most investors look for. This allows them to make a big investment and generate huge profits over a short amount of time.
The best thing about crab pattern trading is its extremely accurate chart pattern.
There’s almost no chance you’ll be on the losing end. In fact, it’s so accurate that it has become the dream of most investors to have a crab formation in their charts.
However, finding one can be quite a challenge. In fact, if you easily found a crab formation on your candlestick chart, you most likely have mistaken something else for it. Identifying and confirming a crab pattern takes a lot of time and checking.
However, by using our Auto Harmonic Pattern Software which Identifies Crab Patterns amongst others and take the Long and Short Trades following the D pivot completing in the Automated Completion Zones as on the chart images above.
Which is what makes this technical analysis technique unsuitable for beginners. There are way too many conditions to keep up with and concepts to follow to enter harmonic trading. A couple of which beginner traders are not aware of just yet.
And perhaps the most hated disadvantage of the crab trading pattern is how it makes you miss out on big trends.
The construction of a crab harmonic pattern makes it prominent in range markets. This means if you trade with this technique, you’ll most likely be far from trending markets. This works for all harmonic patterns, not just the crab formation.