Bat pattern
The Bat pattern is similar to the Gartley pattern in that it is a retracement and continuation pattern that occurs when a trend temporarily reverses its direction but then continues on its original course.
It gives you the opportunity to enter the market at a good price, just as the pattern ends and the trend resumes.
The Bat's main difference to the Gartley pattern is where it completes – at an 88.6% Fibonacci retracement of the X-A leg. Its inner retracements are also slightly different.
As with many patterns, there is a bullish and a bearish version of the Bat.
How to identify the Bat pattern
See the price chart below for an example of what a bullish Bat pattern looks like:
As shown above, the Bat pattern looks very simlar to the Gartley pattern, with four distinct legs labelled X-A, A-B, B-C and C-D.
X-A
In its bullish version, the first leg forms when the price rises sharply from point X to point A. This is the pattern's longest leg.
A-B
The A-B leg then sees the price change direction and retrace 38.2% to 50% of the distance covered by the X-A leg.
Note that the A-B leg can never retrace beyond point X – if it does, the pattern is no longer valid.
B-C
In the B-C leg, the price changes direction again and moves back up, retracing anything from 38.2% to 88.6% of the distance covered by the A-B leg. If it retraces up beyond the high of point A, the pattern becomes invalid.
C-D
The C-D leg is the final and most important part of the pattern. As with the Gartley pattern, this is where the Bat pattern completes and you place your long (buy) trade at point D.
With the Bat pattern, however, you look to place your trade entry order at the point where the C-D leg has achieved an 88.6% retracement of the X-A leg. Ideally, point D should also represent a 161.8% to 261.8% extension of the B-C leg.
MetaTrader 4 can automatically add Fibonacci retracements
The following shows you how this looks on a chart using the Fibonacci tool on MT4.
If you apply the Fibonacci tool to your MetaTrader 4 platform, it can automatically mark key Fibonacci levels on your chart.
The chart below shows what a bullish Bat pattern looks like with the Fibonacci retracement and extension levels marked on the X-A and B-C leg:
Checklist for the Bat pattern
Before you try and trade the Bat pattern, confirm from the following checklist that the pattern is authentic. It should include the following key elements:
- The AB=CD pattern or an extension of this pattern
- An 88.6% Fibonacci retracement of the X-A leg
- A 161.8% to 261.8% Fibonacci extension of the B-C leg
How to trade the Bat pattern
We will now look at how you can trade using the Bat pattern. We will use the bullish Bat pattern as an example. For a bearish Bat pattern (a short/sell trade), simply invert the pattern and your orders.
Enter your trade
Identify where the pattern will complete at point D – this will be at the 88.6% retracement of the X-A leg.
Place a buy order here, as below:
- Entry
Place your stop loss
Place your stop loss just below point X, as below:
- Entry
- Stop loss
Place your profit target
Where you place your profit target with this pattern is highly subjective and depends on your trading objectives as well as market conditions.
One method, however, involves drawing a new Fibonacci retracement from point A to D of the completed pattern. Once this Fibonacci retracement has been drawn, look at placing your profit target at the 61.8% retracement level of A-D.
Note that you can only draw the Fibonacci retracement once the pattern has completed at point D and the price has reversed.
See the chart below for an example of this:
- Entry
- Stop loss
- Take Profit
Summary
In this lesson, you have learned that …
- … the Bat pattern is a retracement and continuation pattern that occurs when a trend temporarily reverses its direction but then continues on its original course.
- … it gives you the opportunity to enter the market at a good price, just as the pattern ends and the trend resumes, and has a bullish and bearish version.
- … it is similar to the Gartley pattern but completes at an 88.6% Fibonacci retracement of the X-A leg.
- … a true Bat pattern will include each of the following: the AB=CD pattern or an extension of this pattern; a 161.8% to 261.8% Fibonacci extension of the B-C leg; an 88.6% Fibonacci retracement of the X-A leg.
- … one way of trading a bullish Bat pattern is to place your buy order at point D (the 88.6% retracement of the X-A leg)
- … place your stop loss just below point X.
- … draw a new Fibonacci retracement from point A-D of the completed pattern and take profit at the point where price will have retraced 61.8% of the distance between A-D.
- … to trade a bearish Bat pattern (a short/sell trade), simply invert the pattern and your orders.
