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The Bat – Harmonic Trading

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A Bat pattern is a harmonic trading pattern that is made of 5 swing points (X,A,B,C and D). The pattern was developed by Scott Carney (book recommendations) and, as in all harmonic patterns; it comes in bullish and bearish variations.

To the untrained eye, Bat pattern may look similar to the famous Gartley pattern, but as you will read below there are some significant differences.

The main reasons that turned Bats to probably the most commonly used harmonic trading patterns are high accuracy rate and the great R/R that they offer.

This blog post will cover the difference between Gartley and Bat, basic guidelines to trading Bat patterns and how I use Bats as part of my Price Zone method.

Gartley Vs. Bat

Harmonic patterns are made of consecutive Fibonacci retracements and extensions levels. They differ by the Fibonacci levels that are being used to form the pattern.

The main difference between a Gartley pattern and a Bat pattern is the positions of their B and D points.

Gartley pattern

Gartley pattern

Bat pattern

Bat pattern

While in Gartley (read more about Gartley patterns) the B point is positioned at the 61.8 Fibonacci level of the X to A swing, in Bat the B point is usually at the 50 level.

The D point in Gartley represents the 78.6 Fib level of XA while in Bat it is the 88.6.

Here are all the main differences between Gartley and Bat:

Bat pattern

AB must close below the 61.8 Fib level (usually closer to 50)

CD represents deep retracement of XA – Usually 88.6% (sometimes even 100% – Double top or double bottom).

BC is usually a deep retracement of AB (61.8, 78.6, 88.6 or 100)

CD size is bigger than AB

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Gartley pattern

AB must close at least at 61.8 Fib level (and below 78.6)

CD usually reaches the 78.6 Fibonacci correction level of XA.

BC usually reaches the 50-61.8 Fibonacci level of AB

CD usually equals AB

Bat trading guidelines

As mentioned above, one of the main advantages of trading Bat patterns is the great Risk/Reward (R/R) that they offer.

With the D point frequently reaching 88.6-100% retracement of the initial X to A swing, the required risk (stop loss level) is quite narrow. Here’s an example:

harmonic trading

Bullish Bat – AUDCHF

The Bat example above shows how AUDCHF presented a bullish opportunity with a total risk of 50 pips and potential profit of 250 pips. Risk to Reward ratio of almost 5!

Notice that the B point reached the 53% Fib level – Classic Bat pattern characteristic.

The D point reached almost to 100% retracement and created not only an harmonic pattern but also a double bottom pattern.

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Entry Zone and Target Zones

The Entry Zone (or the PRZ – Potential Reversal Zone) starts at the 88.6 Fibonacci level (D point) and remains valid as long as the price stays above (or below) A.

Once the price enters the Entry Zone, the key is to find technical reasons that will reinforce the potential reversal scenario. Classical reversal patterns in lower time frames, candlesticks patterns or any other technical tool can be used to try and spot the potential reversal inside the Entry Zone.

Once the price turned inside the Entry Zone the focus moves to the potential Target Zones:

First Target Zone – 38.2% Fibonacci retracement of A to D

Secondary Target Zone – 61.8 Fibonacci retracement of A to D

harmonic trading

Bat pattern – First Target Zone




harmonic trading

Bat pattern – Secondary Target Zone

Price Zones and Harmonics

Harmonic Trading patterns can be traded as a standalone trading system. Harmonic patterns are highly accurate and have well proven track record that has made them one of the most common used patterns in automated systems.

However, there’s a way to improve the performance of harmonic patterns and that’s being done by using them as one part (significant part) of a broader analysis – Price Zones analysis.

Adding trends analysis, structure analysis, Price Action and even indicators can increase the odds to get a successful trade out of a harmonic pattern.

Here’s a simple example:

harmonic trading

Bearish Bat – BBBY

BBBY presented a bearish Bat pattern with an Entry Zone between 59$ and 61$.

The first time that the price entered the PRZ  it turned and declines 3.5$. That’s a nice return on a 1.5$ risk.

But notice that when the price reached the entry zone on the second time, it also generated the following potential reversal signs:

  1. Re-test of broken uptrend line (resistance)
  2. Double top
  3. 2 daily Outside Bar patterns (read more about Price Action)

As you can see, the second time created a much stronger bearish move. The Price Zone (Sell Zone in this case) was much more significant than just the bearish Bat pattern.

Using Price Zone (Buy Zones and Sell Zones) by incorporating several technical analysis techniques provides you with much better trading edge than trading any single system.

Summary

The Bat pattern is one of my favorite harmonic trading patterns. The R/R it offers along with the powerful reversal it often creates has bought this pattern a high rank in my trading tools arsenal.

In this blog post I covered the basic guidelines that will help you identify this pattern and trade it, but as mentioned, its performance can be improved by incorporating the Price Zones techniques.

BBBY example above showed how adding simple technical elements like a trend line and a structure can enormously increase the odds for a successful trade.

Want to learn how I do it? Join my Elite Zone members and see how I implement harmonic trading techniques in my Price Zones trading method.


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