How to trade when you see the Bat pattern? Before trying and trading the pattern, confirm from this checklist that the pattern is real. It should include these vital elements:
An AB=CD pattern or an extension of this pattern An 88.6 percent Fibonacci retracement of the X-A leg A 161.8 to 261.8 percent Fibonacci extension of the B-C leg Next will be to look at how traders can trade using the bat pattern. We will make use of the bullish bat pattern as an example. For a bearish bat pattern, simply do the opposite for your orders.
The first thing to look for when looking for this pattern is the impulsive leg or the XA leg. We are trying to identify a strong move up or down depending if we either have a bullish bat or a bearish bat pattern.
The next thing that needs to be satisfied for an authentic 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 cannot break below the 0.618. This will form the B leg of the pattern.
The next thing traders should do is to look for a retracement of the AB leg up to at least 38.2 percent Fibonacci ratios, but it cannot exceed the 88.6 percent, and this will form the third point C of the pattern strategy.
The last thing to do is to establish is the D point, and to get to the D point, find the 0.886 Fibonacci ratios of the impulsive XA leg, which will lead to a deep CD leg, and finally, it will complete the entire structure of the pattern.
Market strategy The market strategy of the pattern has been tested across various classes of assets (commodities, currencies, stocks, and cryptocurrencies). It is recommended that traders should take the time and back-test the bat harmonic patterns strategy before using this advanced pattern for trading.
Step 1: Drawing the pattern Begin by clicking on the bat pattern indicator that is found on the right-hand side toolbar Identify the beginning point X, which can be any swing high or low point on the chart After identifying the first swing high/low point, simply follow the market swing wave movements You should get 4 points or 4 swings high/low points that join and form the harmonic bat pattern strategy
Step 2: Trading the pattern The 88.6 percent Fibonacci ratio provides traders a more reliable risk/reward ratio which is why the market strategy of the bat pattern is such a very popular as a market strategy. The best entry point is the 88.6 percent Fibonacci retracement which is a very accurate market turning point.
It is recommended that traders should enter as soon as they touch the 88.6 percent figure. Oftentimes the harmonic bat pattern strategy doesn’t go much above this level.
Step 3: Placing a stop-loss Usually, traders should place their protective stop-loss lower than the point X of a harmonic bat pattern. That is the only logical location to hide the stop-loss because any break below will automatically invalidate the pattern.
Step 4: Take-profit margin There can be several ways to manage your trades, but the best target for this pattern should be to use a multiple take profit formula. For this pattern strategy, take the first partial profit once you hit wave-C level and the remaining half once we break above wave-A.
By doing this you will accomplish two things:
first, you’ll ensure that you accumulate profits, and secondly if the markets reverse, you ensure you’re stopped at BE and don’t lose any money.