How to Trade the Bat Pattern – Harmonic bat pattern strategy
The Harmonic Bat pattern strategy will teach you how to trade the bat pattern and start making money with a new exciting approach to technical analysis. The bat pattern market strategy is part of the Harmonic trading patterns system of trading.
Our team at Trading Strategy Guides is building up the most comprehensive step-by-step guide to Harmonic trading and we highly advise you to first start reading the introduction into the harmonic patterns here: Harmonic Pattern Trading Strategy- Easy Step By Step Guide.
It’s necessary to read the introductory article into the harmonic patterns as this will give you a better understanding of how to trade the bat pattern.
The Bat pattern is similar to the Cypher harmonic pattern but it follows different Fibonacci ratios. One of the key ways to differentiate a Bat structure from a Cypher pattern is the B point which, if doesn’t go beyond the 50% Fibonacci retracement of the XA leg then it’s a Bat, otherwise it can turn into a Cypher structure.
The bat pattern market strategy is suitable for all time frames and for all markets, but we have to keep in mind that on lower time frames using the Bat pattern market strategy comes with its own challenges because the Bat pattern has the tendency to show up on less frequent on lower time frames.
Before we dive deeper into the harmonic bat pattern strategy, let’s look at what indicators we need to successfully trade this strategy.
The Fibonacci retracement and ratios are at the core of harmonic trading. Thanks to the rapid advancement in the technical analysis field we can find some very useful indicators to actually help us plot the harmonic patterns and these Fibonacci ratios.
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 bat pattern.
How to Trade the Bat Pattern
The bat pattern market strategy like any other harmonic pattern is a four-leg reversal pattern that follows specific Fibonacci ratios. A proper Bat pattern needs to fulfill the following three Fibonacci rules:
- AB= minimum 38.2% and maximum 50% Fibonacci retracement of XA leg;
- BC= minimum 38.2% and maximum 88.6% Fibonacci retracement of AB leg;
- CD= 88.6% Fibonacci retracement of XA leg or between 1.618% – 2.618 Fibonacci extension of AB leg;
The first thing to look for when identifying the Bat pattern (see figure below) is the impulsive leg or the XA leg. We’re looking for a strong move up or down depending if we either have a bullish Bat structure or a bearish Bat structure.
The next thing that needs to be satisfied for a valid Bat pattern structure is a minimum 0.382 Fibonacci retracement of the XA leg and it can go as deep as 0.50 Fibonacci retracement of the XA leg, but it can’t break below the 0.618. This will create the B leg of our Bat pattern.
The next thing we’re going to look forward is for a retracement of the AB leg up to at least 0.382 Fibonacci ratios, but it can’t go above the 0.886, and this will create our third point C of the harmonic Bat pattern strategy.
The last thing we want to establish is the D point and in order to get to the D point all we do is to find the 0.886 Fibonacci ratios of the impulsive XA leg, which will result in a deep CD leg and finally it will complete the whole Bat pattern structure.
The Bat Pattern Market Strategy
The Bat Pattern Market Strategy has been tested across different asset classes (currencies, commodities, stocks and cryptocurrencies). We recommend that you take the time and backtest the harmonic bat patterns strategy before attempting to use this advanced pattern in your trading strategy.
Step #1: How to Draw the Bat Pattern
I would walk you through this process step by step. All you need to do is to follow this simple guide and 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 bat pattern strategy. Every swing leg must be validated and abide by the Bat pattern Forex Fibonacci ratios presented above.
Now, we’re going to lay down the bat pattern market strategy rules.
Step #2: How to Trade the Bat Pattern: But at the completion of wave D which should satisfy the CD= 88.6% Fibonacci retracement of XA leg
The 88.6% Fibonacci ratio gives you a better risk: reward ratio which is the reason why the bat pattern market strategy is such a popular trading strategy. The ultimate entry point is the 88.6% Fibonacci retracement which is a very precise market turning point.
We recommend entering as soon as we touch the 88.6% figure because often times and based on our backtesting results we have found out that the harmonic bat pattern strategy doesn’t go much beyond this level.
In the above chart, we can spot a bullish bat pattern on the USD/JPY 4h chart, which is a signal to buy.
The next important thing we need to establish is where to place our protective stop loss.
Step #3: Place the Protective Stop Loss below Wave X
Normally you want to place your protective stop loss below the point X of a harmonic bat pattern. That’s the logical place to hide your stop loss because any break below will automatically invalidate the Bat pattern.
The next logical thing we need to establish for the Bat pattern market strategy is where to take profits.
Step #4: How to Trade the Bat Pattern – Take TP1 at Wave C and TP2 at Wave A
There can be many ways to manage your trades, but the optimal target for this pattern should be to implement a multiple take profit strategy. For the Harmonic Bat pattern strategy, we’re going to take the first partial profit once we hit wave-C level and the remaining half once we break above wave-A.
Important Note*: Move your SL to BE once you TP1!
This take profit method is largely profitable because we ensure we liquidate some of our positions at the first trouble area from where the price might reverse and turn against us.
By doing this we accomplish two things: first, we make sure that we accumulate profits and secondly, if the markets reverse we make sure we’re stopped at BE and don’t lose any money.
Note** The above was an example of a BUY trade using the Bullish Bat pattern market strategy. Use the same rules for a SELL trade. In the figure below you can see an actual SELL trade example.
Take a look:
This is a perfect example that demonstrates how useful the harmonic bat pattern strategy is in implementing the multiple take profit approach.
The harmonic bat pattern strategy will bring a special dimension into your trading because we’re examining the price action geometry. The Bat pattern market strategy has a very high rate of success and it needs a relatively small stop loss than most of the other Harmonic patterns. You can also trade with the Gartley Pattern Strategy.
It is important to note that the effectiveness of the harmonic Bat pattern strategy comes from the deep retest of support and resistance levels which often times are quite sharp. One of the key features of the Bat pattern market strategy is the smooth reversal once the 88.6% Fibonacci retracement is reached.
If you’re not comfortable using a reversal trading strategy you can try our popular trend following strategy MACD Trend Following Strategy- Simple to learn Trading Strategy.
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