# Shark pattern Forex trading strategy

A trading strategy based on Shark pattern is a set of conditions and rules to develop an algorithm of actions with the help of graphical analysis. The final goal of this type of analysing price charts is to determine whether the recent trend is going to continue or should Forex traders expect a reversal of the price action. Harmonic patterns are widely-used tools to implement trend-following strategies as the main advantage of the technical analysis suggests using mathematical formulas in the geometry of graphs to find out the current market sentiment and forecast the further direction of the price.

Besides, appropriate implementation of trading rules of the strategy based on Shark patterns helps Forex traders to maintain an affordable and reasonable reward-to-risk ratio, which is aimed to increase the overall profitability of a trading system.

## What is a Shark pattern?

Shark pattern is a variation of harmonic patterns based on Fibonacci retracement levels. The formation is also called XABCD as it has 5 reversal points dividing four waves or legs of the price action. Ratios between legs have to be in certain ranges, corresponding with Fibo percentage numbers. The Shark pattern is used in the graphical analysis to spot continuations of the previous trend, measure the possible depth of the counter-trend price action and calculate reasonable levels of stop-loss and take-profit orders.

The Shark pattern shows a continuation of the recent trend, this is why the initial leg XA must follow the general direction of the price action. The wave AB is a retracement after the first peek at point A. Point C signals an end of the continuation leg BC, and it is higher than point A. Wave CD completes the formation, while point D is lower than point X. The completion of all ratios between legs and conditions described below indicates an entry point D for trading positions.

Shark pattern conditions

1. The depth of the initial retracement AB does not matter for the pattern’s geometry, so point B could be placed anywhere between point A and point X.
2. Wave BC is a 1.13 to 1.618 extension of wave XA;
3. Point C has to be higher than point A;
4. Point D is placed below point B and point X;
5. Leg CD is a 0.886 to 1.13 extension of XA;
6. Wave CD has to have a ratio of 1.618 to 2.24 to BC.

### Shark pattern versus Gartley pattern

Although both patterns continue the previous trend, there is a significant difference in geometry and ratios between legs. The Gartley pattern reminds a double-top or double-bottom pattern as point C is lower than point A, creating a sequence of lower highs on the price chart. However, the Gartley pattern does not reverse the previous trend in case of ratios between legs corresponding to Fibonacci retracement levels. Shark pattern does not have a fixed displacement for point B, which ends the first retracement wave. So the main requirement for point B is to be between point X and point A. However, leg BC is crucial for the overall geometry of the Shark pattern as it forms the extension of wave XA.

Another essential difference between the two variations of harmonic patterns is point D. In the Gartley pattern, point D has to be higher than point X for a bullish case and lower for the bearish one. But the Shark pattern suggests a deeper retracement of the leg CD compared to the Gartley pattern, so point D appears below the initial point X. That creates a difference in the stop-loss order for both cases as the Gartley pattern is considered as valid until the asset price is above point X, so the stop-loss order has to be placed higher. The Shark pattern has a more flexible requirement for the distance of the stop-loss order depending on a particular currency pair, current market conditions, volatility and trading volume.

### How to draw Shark patterns?

The main visual feature of the Shark pattern is a formation of two consecutive peaks or bottoms divided by a retracement. So traders should connect four points before analysing ratios between legs. If the ratio between waves BC and XA is in the allowed range, then the formation could have the potential to become a Shark continuation pattern, and the rest of the conditions have to be checked afterwards. If the main condition is not met, then the formation has to be ignored.

Further analysis allows traders to calculate the possible depth of the retracement CD. If point D is placed in the correct range and ratios between legs CD, XA and BC are in the appropriate range, then the Shark pattern is complete and traders should proceed with opening deals and placing stop-loss and take-profit orders. There is also another approach to place a postponed buy-limit or sell-stop order (depending on the trend’s direction) within a range of leg CD. If-done orders are required in this case.

## How to trade Shark patterns?

As long as the trading strategy based on Shark pattern is a trend-following method, forex traders should open deals following the general direction of the price action spotted on larger time frames. The main advantage of harmonic patterns is that they show a possible threshold where the price still has a momentum to continue the previous trend. Measuring ratios between legs are essential in defining the strength of the counter-trend price action, which helps to forecast the chances for the market players to continue lifting the asset price further. So, for example, if the bearish retracement is not strong enough to reverse the previous bullish trend, and ratios between correction legs meet the requirement of the Shark harmonic pattern, then opening long positions to follow the general long-term tendency looks more attractive and reasonable as the bears do not have the power to reverse the trend. Here is the full list of trading rules of Shark pattern Forex trading strategy.

### Trading rules for Shark patterns

If a XABCD formation is spotted on the price chart, and point C is higher than point A, while leg BC is a 1.13 to 1.618 extension of wave XA, then traders should check further conditions of the pattern before considering opening long positions.

If the ratio between legs CD and XA is in the range of 0.886 to 1.13, and the ratio between waves CD and BC is in the range of 1.618 to 2.24, then traders should go long on the asset.

The stop-loss order has to be placed not far below the point D. The exact distance in pips is determined by the asset’s liquidity, trading volume and market volatility.

The initial target for longs is at the level of point B, and if the price reaches that level, then traders should remove the stop-loss order in the non-risk mode.

The general target of the Shark pattern is at point C, so the take-profit order should be placed several pips below it to avoid possible slide of the price during the high-volatile period.

Rules for short positions are the same but mirrored.

### Bullish Shark pattern

A bullish Shark pattern looks like this:

[h3=|Bullish Shark pattern]Bearish Shark pattern[/h3]

Here is an example of a bearish Shark pattern on the price chart.

## Examples of profitable trades using Shark patterns

The screenshot below shows that the USD/CHF currency pair was in the uptrend on the hourly chart. After a bearish retracement, the rate extended the upside pressure, charting another peak, higher than the first one. After that, another wave of correction sent USD/CHF to point D, lower than point X, so the overall formation could have seemed like a reversal double-top pattern. However, a trader spotted the Shark pattern after connecting all of the five touch points consequently and checking out the ratios between legs. As a result, the trader decided to go long on USD/CHF at point D with a stop-loss order 10 pips below the entry-level. After USD/CHF breached the level B, the trader removed the stop-loss order into the non-risk mode. The pair had another rebound to test the former resistance now support level (see the second green arrow on the chart), offering another opportunity to open more long positions. The final bullish leg sent USD/CHF to the level of point C, which was the final target for both long positions, and the trader took profits there.

If you like this strategy, you might also be interested in this Harmonic patterns strategy

## Conclusion

Forex trading strategy based on Shark pattern is an effective method of spotting continuation formations on price charts thanks to the graphical analysis. The Shark pattern’s geometry is based on Fibonacci retracement levels, which helps to predict the possible depth of the counter-trend price action accurately, keeping a reasonable reward-to-risk ratio. Ratios between legs of the pattern help traders to forecast the trend direction and spot attractive entry levels with an exact target to take profits. The efficiency of the trading system allows using it as a standalone trading algorithm while applying additional technical tools and indicators could increase the overall profitability.