We will discuss today what the Bat pattern is in the forex market and how you can build a trading strategy using the bullish and bearish Bat pattern.
Like other harmonic trading patterns, Bat pattern is very profitable, and many successful traders use it.
There are many types of harmonic patterns in the financial market, and the Bat figure is one of them. This pattern is similar to the Gartley patterns and provides potential market reversal trade ideas.
After a minor correction, the Bat pattern indicates the continuation of the major trend.
On the other hand, this pattern can provide reversal-trading opportunities from the top and bottom of the price.
The main difference between the Bat pattern and the Gartley pattern is that the point C in Bat pattern does not retrace up to 88.6% of XA leg.
Like other harmonic patterns, Bat figure has both bullish and bearish versions.
In the following section, we will see how we can identify the Bat pattern in the forex chart.
Identify the Bat pattern.
In the image below, we can see how a Bat pattern looks like:
Every harmonic pattern is unique for its calculation of legs.
Therefore, it is essential to identify those legs from the Fibonacci retracement and extension. Let’s have a look at how the Bat figure legs are formed:
- XA– XA is the first leg. The bullish Bat pattern creates after a bearish trend and indicates the first movement towards the upside. Similarly, the bearish Bat pattern creates after a bullish trend and shows the first glimpse of the upcoming bearish possibility. There is no Fibonacci ratios for the XA leg.
- AB– AB is the second leg that forms based on the retracement level of the XA leg. Point B be can retrace 38.2% to 50% Fibonacci level of XA leg. The XA leg forms as an impulsive wave. Later on, the AB leg forms towards the opposite of XA leg as a correction.
- BC– BC is the third leg that moves towards the direction of XA, but it does not create any new higher high or lower low. BC leg can retrace from 38.2% to 88.8% Fibonacci level of the AB leg. In Bat patter, point C should not break below or above point C; otherwise, the pattern will be invalid.
- CD– CD is the final leg where point D is entry-level. On the other hand, point D also indicates a 161.8% to 261.8% Fibonacci extension level of the BC leg.
Checklist for Bat Pattern
The price in your chart might differ from other brokers. Therefore, make sure to use an approximate value of Fibonacci levels with a 5-10% discrepancy.
However, to make the Bat figure, make sure to follow these trading rules:
- AB leg and the BC leg can be similar to the size.
- Point C should not break above or below point A.
- CD can retrace a maximum 88.6% of XA leg.
- We can find the point D at 161.8% and even 261.8% Fibo extension level of BC.
In the following section, you will see how you can trade the Bat pattern in both bullish and bearish market structure:
Bullish Bat Pattern trading Strategy
The XA leg is the first leg of the Bullish Bat figure that appears after a bearish trend and move upside by creating a higher high.
Therefore, read the chart pattern carefully from XA leg to CD leg with appropriate Fibonacci calculations and identify the point D. Point D can retrace up to 88.6% Fibonacci levels of the AB leg.
In the image above, we can see how to set the stop-loss and take profit level in a bullish Bat pattern.
Bearish Bat Pattern Trading Strategy
Like the bullish bat pattern, the XA leg is the first leg that appears after a bullish trend and moves downside by creating a lower low.
Read the chart market from XA leg to CD leg and identify the point D.
The image above represents how a bearish Bat pattern forms after a bullish trend how you can identify the point D using Fibonacci calculations.
- Entry: Observe the price until it reaches to the point D and forms a reversal candlestick. It would be best if you took the trade after closing the candle.
- Stop Loss: In a bearish Bat pattern, the XA leg is crucial for sellers. Therefore, put your stop loss above the point X with 10-20 pips buffer.
- Take Profit- Draw a Fibonacci level from point A to point D and. Later on, take a partial closing of your trader at 61.8% Fibonacci retracement level of AD leg and move your stop loss at breakeven. Later on, if the bearish momentum remains strong, you can close your full trade at point A.
In the image above, we can see how to set the stop-loss and take profit level in a bearish Bat figure.
If you read the whole article, you would know how the Bat pattern explained above. Let’s have a look at the summary of Bullish and bearish Bat pattern trading strategy:
- Bat figure works as a reversal pattern from major and minor levels.
- Point C should not move below or above point A.
- You should take the trade from point D.
- XA leg moves with massive speed, therefore, put your stop loss below or above the point X.
- Take a partial closing at 61.8% correction level of AD leg.
In the forex market, no trading strategy can assure you a 100% profit.
Therefore, make sure to use and appropriate risk-reward ratio in every trade to avoid unexpected market movement.