Dear friends,
We use technical analysis tools to identify entry and exit
points in financial trading. Harmonic patterns, which are among these tools,
show us that a pattern has formed in price movements and help us determine
buying and selling opportunities. We often hear that these patterns are also
related to Fibonacci levels. If we define and use them correctly, they can add
another dimension of beauty to our trading. Today we will talk about one of
them, the Shark Pattern.
What is the Shark Harmonic Pattern?
The Shark pattern is a harmonic pattern consisting of five points used in price analysis. Often appearing at the end of a trend, the Shark
pattern indicates that the current trend is weakening and a new trend may be
forming. This pattern is usually represented as X-A-B-C-D (sometimes A-B-C-D-E,
or occasionally 0-X-A-B-C). There are two types of this pattern in technical
analysis:
- Bullish Shark Harmonic Pattern
- Bearish Shark Harmonic Pattern
Both patterns are considered reversal signals. The Bullish
Shark pattern indicates the end of a downtrend and a reversal, while the
Bearish Shark pattern suggests a reversal of an uptrend. This pattern gets its
name because it resembles the teeth of a shark, formed by specific points on
the price chart.
 |
| The Shark Harmonic Patterns |
Definition of the Shark Pattern
Harmonic patterns also involve psychological factors. The
behaviors of market participants can influence the formation of these patterns.
The Shark pattern identifies particular structures in price movements, and
through these structures, we attempt to predict future price movements. To
define the pattern, we should consider the following waves:
In the Bullish Shark:
The Bullish Shark pattern indicates that a downtrend is
coming to the end and that an upward reversal may be starting. It consists of
X-A-B-C-D wave structures, and usually, the C point reaches the 0.886 or 1.13
Fibonacci levels of the B-A leg. The C wave can extend up to the 1.618 or 2.24
Fibonacci extension of the B-A leg, and at this point, a price movement in the
upward direction is expected to begin.
In the Bearish Shark:
The Bearish Shark pattern indicates the end of an uptrend
and the beginning of a downward reversal. This formation is composed of
X-A-B-C-D structures, and typically, the C point reaches the 0.886 or 1.13
Fibonacci levels of the B-A leg. The C wave may extend as far as the 1.618 to
2.24 Fibonacci extension of the B-A leg, signaling an expected downward
movement in price at this juncture.
As seen, both types of Shark patterns are defined using Fibonacci levels as their main characteristics. Fibonacci retracement and
Fibonacci extension levels, in particular, play a major role in the formation
and confirmation of harmonic patterns. The completion points of the pattern
generally align with these levels, providing a clearer definition of the
pattern.
Trading with the Shark Harmonic Pattern
When the Shark pattern appears on the price chart, we
eagerly follow the completion of the pattern to identify trend reversals. When
the Bullish Shark formation is observed, long positions are preferred, while
short positions are favored when the Bearish Shark formation is observed.
However, the reliability and success rate of the pattern depend on other
factors, especially other technical indicators and the price movements
surrounding the pattern. The Shark pattern, particularly when used in
conjunction with Fibonacci levels, can offer higher reliability in identifying
reversal points.
In the Bullish Shark pattern (X-A-B-C-D), entering a long
position is usually considered as the price may start an upward movement.
Buy (Long): You can open a long position when the price
reaches point D.
Stop Loss: A level below point D can be used as the
stop loss level.
Target: When setting a target, the first expectation is that
the price can rise to a level close to point C.
You can examine a trade example based on the Bullish Shark
formation on the chart of the EUR/GBP currency pair in the visual below:
 |
| Bullish Shark Pattern on the EUR/GBP chart. |
In the Bearish Shark pattern (X-A-B-C-D), opening a short
position is usually considered as the price may enter a downward trend.
Sell (Short): When the price reaches point D, you have the
option to initiate a short position.
Stop Loss: A level above point D can be used as the
stop loss level.
Target: The target is set with the expectation that the
price can fall to a level halfway between C and D or close to point C.
In the visual below, you can see a trade example based on
the Bearish Shark pattern on the EUR/USD currency chart:
 |
| Bearish Shark Pattern on the EUR/USD chart. |
Keep in mind: The Forex market, while offering high returns, also carries significant risks. Therefore, the Shark pattern, like other technical indicators, should not be considered 100% reliable. Hence, it is necessary to analyze and confirm it with other indicators before making any trading decisions. Additionally, creating risk management strategies to avoid emotional decisions and focusing on data-driven trading can also increase success. This way, a more robust and sustainable approach can be followed in financial trading.