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Educational Post:

Bearish Bat Harmonic Pattern

Bearish Bat Pattern

The bearish variation has the opposite implication as the bullish Bat pattern. Let’s now illustrate how the bearish Bat pattern appears, and the price movements within each of its respective legs.

Here you can see the bearish variation and the associated fib ratios for the Bat Pattern:

In a bearish Bat pattern, the initial XA leg will be bearish. The following leg will be the AB leg and will retrace the XA leg upwards by the Fibonacci ratio of 38% or 50%. This again marks the B point of the bearish Bat pattern. Again, the B point holds a special significance within the bat structure, and, it needs to terminate at one of these two specific levels in order to correctly label the structure as a bat.

As we will see later, a deeper retracement at the B point can invalidate this pattern, and instead, can lead to the classification of the pattern as a Gartley. Moving on, the BC leg will ensue and will retrace its prior AB leg by 38 to 88%. Finally, the last leg within the structure, the CD leg, will move higher and terminate at or near the 88% retracement of the initial XA leg. Once this happens, it confirms the bearish Bat structure, signaling an imminent reversal as prices should begin the trade lower.

Trading The Bearish Bat Pattern

Let’s now shift our attention to the bearish Bat version. The trading rules would be the same as described above for the bullish Bat pattern, but in the reverse direction. For the purpose of completeness, we will describe the rules here again in the context of the bearish Bat formation.

Below you can see an illustration that details the bearish Bat pattern, along with some additional notations referring to the trade management process.

We will use our pattern recognition skills, or a harmonic pattern scanner, to locate a potential bearish bat formation on the price chart. Once we have found a structure that qualifies, will need to have a plan to execute a short position. Remember that within the bearish bat pattern as well, we need to play close attention to the termination points at point B and point D. And to reiterate, point B should terminate at either the 38% or 50% Fibonacci retracement as it relates to the XA leg. And D point should end at the 88% retracement level of the XA leg.

Rules For Trading The Bearish Bat Pattern:

Enter with a limit order to sell at the 88% retracement of the XA leg.

Stop loss to be placed just above the swing high at point X

Use a multi-target exit strategy. Target one should be set at the swing high of point B, Target two should be set at the swing low of point C, and finally the last target, Target three, should be set at the swing low of point A.

Bearish Bat Pattern Trading Strategy

Let’s now move on and see the strategy in action for a bearish Bat pattern. If you refer to the chart below you will find the British Pound to Canadian Dollar pair with a bearish Bat pattern highlighted.

The XA leg kicks off the structure, and you can see that the price action within this leg is quite impulsive with strong bearish momentum within the overall price movement. Then as prices move higher in the AB leg, we can see that the B point terminated near the 53% retracement of the XA move. Though this is slightly higher than our preferred 50% level, it is nevertheless within an acceptable range for the classification of the bat pattern.

Then after a minor move lower in the BC leg, the final CD leg brought prices higher taking out the swing B high on its way up. At this point we should have been put on notice that a solid bearish Bat trading opportunity is likely developing.

We would have placed a limit order to sell at the 88% retracement of the XA leg, as price was moving higher in the CD leg. You can see the bar wherein our entry would’ve occurred in the circled area near the top of the chart. Also notice that prices continue to move higher even after our sell order would have executed, and the D point terminated all the way to the 97% retracement of the XA leg, forming a double top.

Since our stop loss would’ve been placed beyond the X point high, we would not have been in any major jeopardy of it being hit in this particular instance. It’s also worth noting that the terminal price bar within the CD leg is clearly a pin bar formation. This further bolsters our outlook for a bearish reversal.

As prices move lower, we can see that our first target was hit by the long bearish candlestick that broke below the swing B high. Afterwards, the price retraced higher a bit, before eventually rolling over to the downside again. As the selling momentum increased, our second target was triggered at the swing low of the C point. This was, however, the best we could hope for on this particular trade because shortly after target two was hit, the price action reverses swiftly and begins to trade higher. Soon afterwards, our stop loss at the extreme of the X point was triggered. As such, or entire position was now closed out, but we would have ended up with an overall profit on the trade.

Summary

The bearish Bat pattern is one of four major harmonic trading patterns. The other three include the Gartley pattern, Butterfly pattern, and Crab pattern. The Bat pattern offers the best reward to risk profile of all these other harmonic structures. This is due to the deep retracement that is required to validate the bat formation. Because of this deep retracement, we able to lean heavily on the major swing point nearby at point X, for the placement of our stoploss.

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Educational post

Bullish and Bearish Alternate Bat Harmonic Pattern

The origin of the alternate Bat pattern resulted from many frustrated and failed trades of the standard framework. The standard Bat pattern is defined by the B point that is less than a 0.618 retracement of the XA leg. Typically, the best structures employ a 50 percent retracement at the midpoint. Although there’s room for interpretation and other ratios in the standard Bat pattern, I began the notice a peculiarity in those M and W-type structures that possessed a 0.382 retracement or less at the mid-point frequently resulted in an eventual completion that was slightly beyond the expected 0.886 retracement in the standard framework. In many cases before I became aware of this alternate alignment, I would execute trades at the 0.886 retracement within the standard Bat pattern only to close the trade for a loss due to the lack of a reversal in the projected harmonic area. After slightly exceeding the initial point at X for the pattern and triggering my stop loss, many of these reversals would reverse shortly thereafter, usually at the 1.13 extension of the structure. Again, the defining element of these situations was directly attributed to those M and W-type structures that possessed a retracement that was a 0.382 or less at the midpoint. It took some time to differentiate the structures but the more I was “whipsawed” by these patterns the more I realized that further differentiation was required in these cases. Although the special situations for this pattern will be covered in greater detail later in this material, it is important to understand that such specification is required to differentiate the similar structures. It can be very frustrating to try to trade these two types of patterns without differentiating their structures.”

Harmonic Trading: Volume Two Page 110 (Copyright Scott M. Carney 2004 HarmonicTrader Press, 2nd ed. 2010 Financial Times Press)

The Alternate Bat Pattern™, is a precise harmonic pattern™ discovered by Scott Carney in 2003.

The pattern incorporates the 1.13XA retracement, as the defining element in the Potential Reversal Zone (PRZ).

The B point retracement must be a 0.382 retracement or less of the XA leg. The Alternate Bat pattern™ utilizes a minimum 2.0BC projection. In addition, the AB=CD pattern™ within the Alternate Bat is always extended and usually requires a 1.618 AB=CD calculation.

The Alternate Bat pattern™ is an incredibly accurate pattern that works exceptionally well in the RSI BAMM divergence setup.

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Educational Post:

Bullish Bat Harmonic Pattern

There are different types of the harmonic chart pattern. The Bat pattern is one of the many harmonic patterns named after animals, but what is it?

The Bat pattern is a simple XABCD harmonic pattern that consists of four price swings and five pivot points — X, A, B, C, and D. One of the harmonic patterns was developed by Scott M Carney – it is believed to have a good reward ratio. With the harmonic chart pattern, you may be able to predict how the price might move in the near future.

In this post, we take a look at the Bat harmonic pattern and make a backtest at the end of the article.

Table of contents:

What is a harmonic Bat pattern strategy?

What are harmonic patterns?

Harmonic Bat pattern trading rules

How do traders trade the Bat pattern?

Which timeframe is best for harmonic Bat pattern?

Harmonic Bat Pattern Strategy backtest

What is a harmonic Bat pattern strategy?

The Bat pattern is a simple XABCD harmonic pattern that consists of four price swings and five pivot points — X, A, B, C, and D. One of the harmonic patterns developed by Scott M Carney, the pattern consists of the XA, AB, BC, and CD price swings.

As with other XABCD harmonic patterns, the Bat pattern starts from point X and swings through points A, B, and C, eventually ending at point D, making two impulse waves and two correction waves. The XA and CD swings are the impulse waves, whereas the AB and BC swings are correction waves.

As you can see, the AB swing is a retracement of the XA swing, while the BC swing is a retracement of the AB move. Then comes the CD swing, which extends beyond the B point but doesn’t get to the X point. In a way, the pattern looks like the Gartley pattern — the only difference is in the Fibonacci ratios. As with other harmonic patterns, the Bat pattern can have a bullish or bearish orientation

What are harmonic patterns?

Harmonic patterns are chart formations that arise from a unique pattern of price waves. They typically consist of four price waves with five swing points that follow unique Fibonacci ratios. The harmonic patterns are considered reversal patterns that may either indicate a trend reversal or the reversal of a multi-legged pullback.

By identifying and analyzing harmonic chart patterns, you can predict how the price might move in the near future. But to exploit the trading opportunities that come with the patterns, you must first know the criteria for identifying a valid pattern.

Harmonic Bat pattern trading rules

The criteria for identifying the Bat pattern are as follows:

The XA wave is a normal price swing in the upward or downward direction.

The AB wave is a 38.2% or 50.0% retracement of the XA wave.

The BC wave can be either a 38.2% or 88.6% retracement of the AB wave.

If the BC correction wave is 38.2% of the AB swing, the CD wave should be a 161.8% extension of the BC wave. But if the BC wave is 88.6% of the AB wave, then, the CD wave must be around a 261.8% extension of the BC wave.

Overall, the CD wave should be 88.6% retracement of the XA move.

How do traders trade the Bat pattern?

Traders who trade the Bat harmonic pattern strategy follow these steps:

They identify a potential Bat harmonic pattern: When the price makes three waves that may look like a Bat pattern, smart traders use the harmonic pattern tool in the trading platform to trace and label the price swings and project the D (PRZ) point, which should be at an 88.6% retracement of the XA swing.

They wait for the pattern to complete: When the price gets to the projected D point, they look for signs of the price reversal, such as a reversal candlestick pattern (like the engulfing pattern, pin bar, or an inside bar) or an RSI showing an oversold/overbought signal, as the case may be.

They place their orders accordingly: For a bullish Bat pattern, they go long with a market order once they see a sign of price reversal around the PRZ level. For a bearish Bat pattern, they go short.

They put their stop loss and profit target: A stop loss is placed beyond the X-point. They normally use multiple profit targets to take partial profits at multiple levels, with the first target being at the 38.2% retracement of CD and the second target at 61.8% retracement of CD. A third profit target may come at the level of the C point.

Which timeframe is best for harmonic Bat pattern?

The Bat harmonic pattern strategy can be traded on different timeframes, but many traders like to trade it on the hourly, 4-hourly, or daily timeframe. But we can’t say that those are the best timeframe for the strategy until you do thorough backtesting to find out the timeframe the pattern works best.

Which Time Frame Is Best In Trading?

Harmonic Bat Pattern Strategy backtest

The harmonic bat pattern strategy is very difficult to backtest with precise trading rules and settings. Unfortunately, we are not able to make any meaningful backtest of the pattern. One way to backtest could be to use the zig-zag indicator, but the indicator is forward-looking and not reliable.

In general, because of the lack of objectivity, we believe classical chart patterns might be a dead end for traders. Why would you spend time on something that is not backtested where you have no clue if the pattern is profitable or not? How do you know a pattern is profitable if you have not backtested it?

A backtest doesn’t guarantee anything, but at least you know it has been profitable in the past. If the pattern has not been profitable in the past, you can safely skip it and not waste any more time. Trading is about having a portfolio of trading strategies, not having one or a few subjective classical chart patterns. There is no best trading strategy because you need many to smooth returns.

(If you are new to backtesting and it looks like a daunting task, you might be interested in our backtesting course.)

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