The Bearish and Bullish Crab

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Video Transcript:

Hello, traders. Welcome to the seventh module of the Advanced Technical Analysis Course, Harmonic Patterns. In this lesson, we’re going to teach you how to trade the bearish and the bullish Crab. This is a much, much deeper structure so bear in mind that it does not happen very often but when it does, it deals a very low risk to reward ratio on a very high probability setup. So, let’s start.

Crab Harmonic Pattern

The structure of the Crab was discovered by Scott Carney in 2001 and it’s a much deeper structure than the others that we have gone through on this module. The B-point is not a mandatory level like the other ones but it has to be a retracement between the .382 and .618 of the XA leg. So, here’s how a Crab looks like. And as you can see, it is actually a much, much deeper structure to the downside for the D point on a bullish Crab and to the upside of the D point on a bearish Crab. And as you can see, the ratios are pretty extreme on the retracement of the XA leg and the projection of the AB leg unto the D point. So, the D point is created by a 1.618 retracement of the XA leg and an extreme extension of the AB leg. The D point has to be a projection of at least 2.24 to 3.618 for us to have a valid Crab pattern.

So, you can see because the B point is such a small retracement and the D point, a very deep retracement, this projection has to be so extreme. Most of the times, expect price action to exceed the 1.618 XA leg. So, this means that most of the time, you will have the 1.618 D point here but price will exceed it because it has to hit an extreme projection of at least 2.24 of the AB leg.

Crab Harmonic Pattern

Now, let’s go through an example so you can better understand what we’re talking about here. We have an up move here and our X and A points. Then, we measure our Fibonacci retracement levels and as you can see here, price retrace right to the 50 level which happens to be between the .382 and the .618 mandatory for us to start to think that we have a Crab in play, so we name the B point here. Then, we have a move to the upside that hits the .886 retracement level for our point C to be spotted. Then, the price moves all the way down taking the B low and the X low and hits the 1.618. This is what we were talking about, guys. Even though we had the 1.618 retracement level of the XA leg as a mandatory for the D point, price exceeded it and hit the 2.24 extension of the AB move, okay?

Now, because we have this candle that shows a huge rejection of the 2.24 level, we can name this our point D, and this is actually our buy zone. After this candle closes and shows the rejection of this extension level, we can actually go and buy, or go long on this instrument, and price moves all the way up. Our stops should be below the low of the D and our first targets should be at the B point because, as you can see, it is an extreme or a very strong support level. And, as you can see here, it was tested before it actually broke through the upside.

So, you can take half your position here at the B-point and then, the rest at the highs of the C point. But, as you can see here, the Crab is a much, much deeper structure but it actually yields a better risk to reward ratio than the other one. So, keep in mind that the thing about Harmonic Patterns is to have patience, to wait for the correct retracements, and if the price does not hit the correct retracement or extensions, don’t go and move your XA points, or B points, or C-points for you to be able to fit the levels into price action. Because if you do that, you will be trading a non-valid Crab, or Gartley, or whatever pattern you were actually looking at and you will have a negative result in the long run.


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