Fibonacci, fractals, RSI, CCI, Pitchfork Tool, Volume, Gap And Scalping Trading Tips And Tricks
Another harmonic or Fibonacci pattern is the Crab pattern. So far, I have thoroughly explain what is Gartley, Bat and Butterfly pattern at dayprotraders.com. Today, one will gain a clear understanding of the crab pattern, and know also how to trade it like a pro without cutting corners.
Anatomy Or Structure Of Crab Pattern
The Crab pattern has three components: AB, BC and CD. It is a distinctive ABCD pattern where CD is significantly superior to AB (CD>AB). Similarly to other harmonic patterns, a trend and correction have been completed before the crab pattern starts to form.
AB price structure stops between 38.2% and 61.8% Fibonacci retracement of XA. BC price action retraces AB as usual between 38.2% and 88.6%. CD is the last component of crab pattern that is expected to end in the zone of 161.8% Fibonacci extensions level of XA.
In many instances, the potential reversal point D can bring CD price structure in the zone of 261.8%, 314% or 361.8% Fibonacci extensions level of XA.
The 161.8% is powerful Fibonacci extension breakout level. Therefore, if a breakout fails to occur at that level, there could be a mighty reverse force at the point D. Price often goes beyond the point D at 161.8% Fibonacci extension of XA because of the breakout nature of that level. Based on the characteristics of the 161.8% Fibonacci extension, it is always tricky to sell at that level at the point D.
Remember that the price is the king. No reversal is valid until the price confirms it. Indeed, the price can extend beyond the 161.8% Fibonacci extensions of XA. One should just flow with the price until the common sense trend line is broken, and a viable trade setup is in place. One should never assume that a reversal is banked for sure at 161.8%. That is really naive.
As I said before, anyone can learn about the harmonic patterns withing few hours, but the challenge is to find best and valid Fibonacci patterns, and be able to trade them either during their formations and maturity stage at the point D.
How To Trade Crab Pattern
One must use a different times frame trading system at the point C and D but also at the breakout point B if there is a valid breakout above B. In a practical fashion, draw horizontal line at points B, C and D and give priority to bullish trading signals above and bearish ones below those point. Use a common sense trend line to determine the strength or weakness of each leg of the Crab pattern. Look out also for candlestick patterns especially at points C and D. One may also look out for a retest of the point B if there is a breakout.
The main question is have I got a viable trading setup at one those points?
If yes, then it is all good. If not, do not create it or try to force the price just because of your assumption. Yes, it is one thing to know everything about the crab pattern, but it is another to make real money trading it.
First, one learns about the Crab pattern, then one assimilates that knowledge through a clear understanding. One then begins to put into use that understanding. Subsequently, that application of the theory of the Crab pattern will allow one to gain valuable experience to the point where one begins to make consistent excellent decisions. Work on your ability to spot a valid crab pattern on any time frame. Then validate the pattern.
The validation of the crab pattern consists of going to the next corresponding higher time frame to check if everything is aligning nicely. For example, a technical trader that spots a crab pattern on the 4H chart must check the weekly chart; and hourly chart crab pattern traders ought to check the daily chart. The next corresponding higher time frame for daily is monthly.
One does not want to miss out at the point B, C and D during the formation of the coveted Crab pattern. When it comes to trading the Crab pattern, one must first identify a valid Crab pattern then trade it like a professional without assuming anything especially at the point D. A top-down trading strategy is compulsory if one wants to trade the Crab pattern more precisely. Also, one should never neglect the fundamental analysis if one is swing and position trading or investing in the financial markets.
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