E9 Shark-32 Pattern

9월 19일

Understanding the Shark-32 Pattern and its Trading Applications

The Shark-32 Pattern is a bearish technical trading formation used to predict market reversals or trend continuations. It highlights a downward move followed by a corrective rally, signaling a potential resumption of the downtrend. Here’s a breakdown of how it works:

What is the Shark-32 Pattern?
The Shark-32 pattern is a five-wave structure typically observed in bearish markets:

• Wave 0 to X: A significant price decline starts the pattern.
  
• Wave X to A: A correction pushes the price slightly upward.
  
• Wave A to B: The price drops again but doesn’t reach the initial low.
  
• Wave B to C: A final sharp decline concludes the pattern.
  
• Once Wave C is formed, it suggests that the market will continue to move downward, presenting a potential selling or shorting opportunity.
  
  • Using the Pattern in Trading
    This pattern is valuable for traders seeking high-probability bearish setups. The goal is to capitalize on the continuation of a downtrend following the corrective rally (X to A). Identifying the Shark-32 pattern helps anticipate the next wave of selling pressure.
    
    Trading Setup
    Identify a Shark-32 pattern.
    If the price closes above the pattern's high, buy at the open the next day.
    If the price closes below the pattern's low, short at the open the next day.
    Sell/cover when the price moves 7% in the direction of the breakout.
    Close the trade for a loss if the price moves 7% in the opposite direction.
    For example, in a bull market after an upward breakout from a Shark-32, the net gain was $69.55. The method won 56% of the time with 5,218 winning trades and an average gain of $714.07. Conversely, 44% of trades were losers, with an average loss of $747.33. The average holding period was 26 calendar days.
    
    The gains and losses were closely aligned with the 7% threshold set for this test.
    
    Key Target Levels
    To enhance the strategy, use dotted projection lines as target levels:
    
    Upper Target: Drawn above the high of the corrective rally (Wave A). If the price breaks above this line, it may signal further upward movement, indicating a potentially weaker downtrend.
    Lower Target: Positioned below the low of Wave C, providing a target for bearish trades.
    These lines help determine future price targets and assist in setting take-profit or stop-loss levels.
    
    Trading the Breakout
    Look for breakouts once the Shark-32 pattern is identified:
    
    Upward Breakout: If the price closes above the green line (high from two bars ago), it indicates a potential reversal to the upside.
    Downward Breakout: If the price breaks below the red line (low from two bars ago), it confirms the bearish continuation.
    Breakouts allow traders to adjust their positions based on market shifts.
    
    Trading Tips
    Continuation: The Shark-32 pattern acts as a continuation 60% of the time, confirming the ongoing trend.
    Breakout Confirmation: Wait for the price to close above or below the pattern’s key levels before entering a trade.
    Trade with the Trend: Since the Shark-32 is a continuation pattern, expect the breakout to align with the inbound price trend.
    Symmetry: Patterns with symmetry often perform better. For more insights, refer to detailed trading literature.
    Half-Staff: The Shark-32 can form midway in a trend, similar to flags and pennants.
    
    Shark-32: Trading Performance
    Based on an analysis of 23,369 trades, the following performance metrics were observed:
    
    Bull Market with Upward Breakout: The average net profit was $69.55. This method won 56% of the time, with winning trades averaging $714.07. Losing trades, which constituted 44% of the total, had an average loss of $747.33. The average holding period was 26 calendar days.
    Bull Market with Downward Breakout: The average net loss was $(76.36). This method won 43% of the time, with winning trades averaging $753.56. Losing trades, which constituted 57% of the total, had an average loss of $706.32. The average holding period was 23 calendar days.
    Bear Market with Upward Breakout: The average net loss was $(89.13). This method won 46% of the time, with winning trades averaging $710.77. Losing trades, which constituted 54% of the total, had an average loss of $756.97. The average holding period was 16 calendar days.
    Bear Market with Downward Breakout: The average net profit was $65.17. This method won 52% of the time, with winning trades averaging $781.62. Losing trades, which constituted 48% of the total, had an average loss of $722.41. The average holding period was 13 calendar days.