Crab Chart Pattern
If you’re still struggling to make money consistent money trading the Forex market then the Crab pattern harmonic trading strategy will teach you how to grab money out of the market on a daily basis. The Crab harmonic pattern is part of the Harmonic trading patterns.
Our team at Trading Strategy Guides is building up the most comprehensive step-by-step guide into Harmonic trading and we highly advise you to first start reading the introduction into the harmonic trading here: Harmonic Pattern Trading Strategy- Easy Step By Step Guide.
It’s necessary to read the introductory article into the harmonic trading as this will give you a better understanding of how to trade the Crab chart pattern. Also known as the 5-0 pattern
The harmonic pattern Crab is another unique harmonic pattern that has a price structure that looks the same as the Butterfly chart pattern. The difference between the Crab pattern and the Butterfly pattern is the CD swing leg which has a bigger extension.
Also, the Crab pattern frequently experiences very sharp and volatile price action and it’s very important to anticipate higher volatility when executing your trades at the pattern completion point. Here You can learn how to profit from trading.
Before we delve deeper into the Crab pattern harmonic trading strategy, let’s look at what indicators we need to successfully trade this strategy.
The advance in technology and the multitude of trading platforms available for traders has made the process of identifying the bullish Crab pattern quite easy.
Many platforms have built-in automated indicators that will draw the Crab pattern and will help you have a better visualization of the pattern while at the same time making sure that it‘s following the Fibonacci ratios as per the rules.
You can find the Harmonic Pattern Indicator on most popular Forex trading platforms (TradingView and MT4) in the indicator section.
Now, let’s move forward and see how to trade the Crab harmonic pattern.
How to Trade the Crab Chart Pattern
The Crab market strategy like any other harmonic pattern is a four-leg reversal pattern that follows specific Fibonacci ratios. A proper Crab pattern needs to fulfill the following three Fibonacci rules:
- AB= retrace between 0.382 - 0.618 Fibonacci Retracement of XA leg;
- BC= minimum 38.2% and maximum 88.6% Fibonacci retracement of AB leg;
- CD= Poses a target between 2.24 - 3.618 Fibonacci extension of AB leg or an ideal target of 1.618 of XA leg. The Crab harmonic pattern shares some similarities with the Butterfly Harmonic Pattern.
Note* the Fibonacci retracement and ratios are at the core of harmonic trading. Make sure the above rules are satisfied before you trade the Crab harmonic pattern.
The harmonic Crab is an extreme harmonic pattern which means price action will typically be volatile and be extreme as it enters the Potential Reversal Zone (PRZ).
In a bullish Crab typically the highest number in the harmonics support zone is going to be the alternate ABCD component that is either 1.24 or 1.618AB=CD.
However, in most cases, the Crab pattern is going to have a 1.618 alternate AB=CD, but we still allow the 1.24 to define a valid structure, but in most cases, we’re looking at 1.618 alternate AB=CD and this is going to be the highest number in the PTZ.
Let’s take one step forward and see how you can make money applying the Crab trading rules.
Crab Pattern Harmonic Trading Strategy
Trading the Crab harmonic pattern can be perceived as a very hard trade to take because of the price action because the price action is moving quickly towards the pattern completion point or the potential reversal zone.
As we’re going to see in the examples coming up we’re going to notice how profitable the Crab price formation can be. The price action usually changes direction immediately after testing the PRZ which is why this pattern is so powerful.
Step #1 How to Draw Crab Chart Pattern
To learn how to draw the Crab pattern simply follow step by step guide – see figure below for a better understanding of the process:
- First, click on the harmonic pattern indicator which can be located on the right-hand side toolbar of the TradingView platform.
- Identify on the chart the starting point X, which can be any swing high or low point on the chart.
- Once you’ve located your first swing high/low point you simply have to follow the market swing wave movements.
You need to have 4 points or 4 swings high/low points that bind together and form the harmonic crab pattern strategy. Every swing leg must be validated and abide by the Crab pattern forex Fibonacci ratios presented above.
Now, we’re going to lay down the bearish Crab trading rules.
Note* for the purpose of this article we’re going to use the case for a bearish Crab harmonic.
Step #2: How to Trade Crab Chart Pattern: SELL at Point D which should satisfy the requirement CD = 2.24 - 3.618 of AB leg.
Ideally, any trades taken using the Crab pattern are taken near point D.
Now, because we can’t really control how far the leg D will go, we recommend going short once the minimum level of the Potential Reversal Zone has been reached.
The point D of a harmonic Crab needs to satisfy the requirements CD = 2.24 -3.618 of AB leg.
The crab pattern is an explosive pattern because once the D point has been developed we should see a quick trend reversal that has the potential to generate big profits
Now, you can also sell anywhere between the 2.24 and 3.618 Fibonacci retracement, but for better timing your entry you can also use our price action guide or simply enter as soon as we hit 2.24.
The next important thing we need to establish is where to place our protective stop loss.
Step #3: Place the Protective Stop Loss above the 3.618 Fibonacci extensions.
The initial protective stop loss should be at 3.618 Fibonacci extension and once the market starts moving in our favor it should be moved at the completion of D leg.
That’s the logical place to hide your stop loss because any break below will automatically invalidate the Fibonacci requirements for a Crab harmonic.
One of the shortcomings of the Crab pattern is that it requires using a wide stop loss, but it can be overcome by trailing your SL once the trade starts to move in your favor, we move the SL right below the point D.
The next logical thing we need to establish for the Crab harmonic strategy is where to take profits.
Step #4: Bearish Crab Pattern Target: Multiple Take Profit Strategy: TP1 = 0.618 CD Fibonacci retracement; TP2 = below A
For this specific harmonic pattern, we’re purposing a multiple take profit strategies. The Crab remains a very reliable pattern but we want to cash in some quick profits since this is one of the most volatile harmonic pattern.
The first profit target is at the 0.618 Fibonacci retracement of the CD leg. The 0.618 is derived from the golden ratio 1.618 numbers which is one of the most important numbers in mathematics. It makes sense to take profits at the 0.618 Fibonacci retracement level.
The second profit target is at the break of the A leg. Alternatively, you can also try to ride the new trend and trail your protective stop loss above each successive new high.
Note** the above was an example of a SELL trade using the Bearish Crab pattern trading strategy. Use the same rules for a BUY trade. In the figure below, you can see an actual BUY trade example.
Conclusion - Harmonic Patterns
You need skills and a bit of trading experience to identify the deep crab pattern. Once you start mastering this harmonic pattern, new amazing trading opportunities will emerge that can exponentially grow your account if all the Fibonacci requirements are met. You can also read our winning news trading strategy.
The harmonic pattern crab signal doesn’t happen quite so often but when it does, it offers us a very low risk to reward ratio. To profit from this crab chart pattern follow the rules highlighted in the Crab harmonic trading strategy.
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