In this article we continue with the theory of harmonic patterns, which are price patterns that indicate the potential zones of change in the market price, although as always, ideally these trend change patterns should be confirmed with other technical tools. Today we will see the Harmonic Bat pattern. It could be said that within the harmonic patterns is one of the favorites among investors due to its effectiveness or reliability of its buy and sell signals.
The Bat pattern consists of several points (X, A, B, C and D) and price movements (AB, XA, BC, CD) and, of course, it has a bullish version and a bearish version. It is similar to the Gartley pattern but with different Fibonacci levels, for example, the Fibonacci retracement of 88.6% of the X-A movement.
If we speak of an ideal or perfect harmonic Bat pattern, its defining characteristics are as follows:
- The A-B movement would be a Fibonacci retracement of 38.2%to 50% of the X-A movement, the B-C component would be a Fibonacci retracement or 38.2% or 88.6% of the A-B component.
- The C-D component could be a Fibonacci extension of 161.8% to 261.8% of the B-C movement.
- Point D (turning point) would be a Fibonacci retracement of 88.6% of the X-A segment.
We could say that the main characteristics of this chart formation are the following:
- It consists of five points: X, A, B, C, and D.
- The five points give rise to four components or segments: X-A, A-B, B-C and C-D.
- The A-B component can make a retracement of 38.2% – 50.0% of the X-A component.
- The B-C component can make a retracement of 38.2% -88.6% of the A-B component.
- The C-D component can perform a retracement of up to 88.6% of the X-A component.
- The C-D component can be an extension of 161.8% -261.8% of the A-B component.
- D is the entry point for buying and selling trades.
- The stop loss could be placed below X point (bullish Bat pattern) or above X point (bearish Bat pattern).
The essence of the Bat pattern is that it is a chart formation that would help us to enter and incorporate into a trend when it is resuming after a correction. Also, this pattern can give us a good entry when the market definitively changes its trend. Therefore, it is a relatively common harmonic pattern that occurs when the trend changes its direction and then returns to its previous direction.