INTRODUCTION

Trading is a profitable activity. Risky, but very profitable. How do we increase our chances of winning? We reduce riskby stacking the odds in our favour through proper analysis of the market. This sounds easy but is far from it.

This week, professor @cryptokraze took us on a lecture on trading sharkfin patterns. This pattern is a regular occurrence in the market and provides a good opportunity for traders to take advantage of the market. This article is an attempt to answer the questions from the assignment;

1 - What is your understanding of Sharkfin Patterns. Give Examples (Clear Charts Needed)

2 - Implement RSI indicator to spot sharkfin patterns. (Clear Charts Needed)

3 - Write the trade entry and exit criteria to trade sharkfin pattern (Clear Charts Needed)

4 - Place at least 2 trades based on sharkfin pattern strategy (Need to actually place trades in demo account along with Clear Charts)

SHARKFIN

On a fishing boat with my friends, we see the triangle gliding with considerable speed. Voices start to cry out; Danger! Shark!
Whilethe presence of a sharkfin in the waters is not a welcome sign for most, for we traders, the sharkfin is something we want to see. The sharkfin pattern does not signify danger, but rather opportunity.

The sharkfin pattern is a result of an overbuy or sell in the market, and appears on the chart when there is strong buy/sell in the market followed by immediate correction. A V-shape appears on the chart and the signal for sell is confirmed.

sharkfin on an uptrend

sharkfin reversing downtrend

SHARKFINS AND RSI

The sharkfin pattern an be mistaken when a simple V-shaped pattern occurs, so how do we confirm if there's an overbuy or oversell?

Relative Strength Index.

The RSI measures the strength of the price action. By default price action below 30 RSi is regarded as oversold, while above 70 is regarded as overbought. The Sharkfin pattern can be confirmed when the RSI indicated an over-buy/over-sell on the RSI.

Reversing Downtrend
The market sold very well at this point, and went below the 30RSI level. This confirmed that there was an oversell, and a correction would be expected, soon after, the market buys, correcting the RSI to above 30. The RSI in essence here, helped us differentiate between the sharkfin pattern formed here, and a normal buying and selling price action.

RSI below 30, confirming the sharkfin

Reversing Uptrend
The bulls were in control, till the volume became really high and the RSI broke 70. This prompted the sell and correction by a sedll to form the sharkfin. Note how there were various inverted V-shaped price actions on the chart but only one was confirmed by the RSI to be an over-buy.

RSI above 70, confirming the sharkfin

TRADING THE SHARKFIN

For Reversing Downtrends

To confirm the sharkfin;

1. Wait for the RSI to go below 30, signalling an over sell.
2. The RSI quickly climbs back above 30, following a bullish move.

Entry & Exit;

1. Market execution is used to open the trade after a candle closes above the 30 RSI
2. Stoploss level should be a bit below the sharkfin low
3. Take Profit level at least 1:1 ratio with the stoploss

For Reversing Uptrends

To confirm the sharkfin;

1. Wait for the RSI to go above 70, signalling an over buy.
2. The RSI quickly drops below 30, following a bearish move.

Entry & Exit;

1. Market execution is used to open the trade after a candle closes below the 70 RSI
2. Stoploss level should be a bit above the sharkfin high
3. Take Profit level at least 1:1 ratio with the stoploss

TRADES WITH SHARKFIN

For lack of better examples, due to inability to watch the charts for long , I'll demo trade on this one minute chart imperfect samples of the sharkfin pattern.

BUYING

Market sells, The RSI drops below the 30 level, and comes back up, I enter the buy as the candle closes.

Minutes later the market buys, and I can take my $43 profit as shown in the image below.

SELLING

Got the screenshot late, but The market overbouth above 70, and I opened a sell. Unfortunately, at this point, The market spread kept me in loss.

The trade did not end well, I looked to hold longer, but the market eventually resumed buying and closed my trade.

CONCLUSION

The sharkfin pattern when recognized and confirmed is a good reversal sign, and an opportunity to make money. Traders must however remember to support it with the RSI and any other complimentary indicator for spotting reversals.
Remember to always use good risk management and not to trade with money you cannot afford to risk. I hope you enjoyed reading.