1. What is your understanding of Sharkfin Patterns. Give Examples
Sharkfin pattern is a trend reversal pattern that is used to predict the future price movement of an asset. The shark fin pattern is formed when the market quickly runs in a specific direction and the trend suddenly reverses in the opposite direction. The sudden change of directions in trends forms a V-shaped pattern looking like the fin of a shark - Shark fin.
When the pattern forms around the resistance area, it means the market is leaving an uptrend and entering a downtrend. This forms an inverted V pattern (^).
Below is an illustration of a bearish trend reversal (inverted V) shark fin pattern:
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When the pattern is formed around the support area, it means there is a bearish trend reversal where the market leaves a downtrend and suddenly enters an uptrend. This forms the V shape pattern.
Below is an illustration of a Bullish trend reversal (V shaped) sharkfin pattern:
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An identified sharkfin pattern in a chart helps traders identify trend reversals in the market but complemented with indicators like RSI reaffirms the signal the pattern is indicating.
2. Implement RSI indicator to spot sharkfin patterns.
Using the RSI indicator's parameters, we can spot Sharkfin patterns from the indicator just like we would in the charts. With the overbought level set at 70 and above and oversold level set at 30 and below, we can identify Sharkfin patterns from the indicator.
Here, the RSI should indicate that the market is in a bullish trend and has crossed the 70 level on the RSI indicating that the asset has entered the overbought region. There should be a sudden reversal and the line should be seen trending downwards and fall below the 70 mark. This should correspond with a sudden trend reversal in the charts from a bullish trend to a bearish trend.
Here, the RSI should indicate that the market is in a bearish trend and has fall below the 30 mark on the RSI indicating that the asset has entered the oversold region. There should be a sudden reversal and the line should be seen trending upwards and rally over the 30 mark on the indicator. This should correspond with a sudden trend reversal in the charts from a bearish trend to a bullish trend.
Write the trade entry and exit criteria to trade sharkfin pattern
The sharkfin pattern from the RSI indicator can aid traders identify when they should enter a market and when to exit the market.
For Buy entry:
- The RSI indicator should be added to the chart with the default parameters.
- On the indicator, be sure that the price has gone below the 30 mark and there is a quick trend reversal forming a V shape below the 30 mark on the indicator.
- The reversal should be seen trending upwards and cross the 30 mark upwards then you can execute a buy order.
- Be sure the price has clearly moved over the 30 mark and there are corresponding bullish candlesticks and uptrend in the chart.
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For Sell entry:
- The RSI indicator should be added to the chart with the default parameters.
- On the indicator, be sure that the price has gone above the 70 mark and there is a quick trend reversal forming an inverted V shape above the 70 mark on the indicator.
- The reversal should be see trending downwards and fall below the 70 mark then you can execute a sell order.
- Be sure the price has clearly moved below the 70 mark and there are corresponding bearish candlesticks and downtrend in the chart.
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Exiting a buy position:
Once we have identified a shark fin pattern, we expect the market trend to move from a bearish trend to a bullish trend but because the market can behave otherwise we take certain measures to reduce risks. In reducing risks, we set stop loss and take profit levels. The stop loss level is to reduce our risk of further loss if the market does not go as we expect whereas the Take profit level is where we close position and take the profits after the trade went as we expected.
The Stop loss level shoud be placed below the swing low point .
Take profit level should be above the current market price but should be equal to our stop loss level using a 1:1 Risk:Reward ratio.
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Exiting a Sell Position:
Traders should set stop loss levels in case trade does not go as expected and Take profit levels.
The stop loss level should be set above the swing high point of the sharkfin.
Take profit levels should be set below current market price but equal to the stop loss level using a 1:1 Risk:Reward ratio.
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4. Place at least 2 trades based on sharkfin pattern strategy (Need to actually place trades in demo account along with Clear Charts)
I will be performing this task via TradingView platform for the charts and it analysis. The trading exercise will be done via PaperView.
Below is a chart of BTC/USDT chart. From the chart, we see a change in trends from a bullish market trend to a bearish trend and on the RSI indicator, the shark fin pattern formed. The bearish trend is confirmed after when the price level on the RSI indicator clearly moved below the 70 mark after the pattern formed, which is a good sell entry point.
I placed a sell order, set my stop losses and take profit levels as shown below
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Below is a chart of LTC/USDT chart. From the chart, we see a change in trends from a bullish market trend to a bearish trend and on the RSI indicator, the shark fin pattern formed. The bearish trend is confirmed after when the price level on the RSI indicator clearly moved below the 70 mark after the pattern formed, which is a good sell entry point.
I placed a sell order, set my stop losses and take profit levels as shown below
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Below is a summary of my trade and how they were performing at the time of doing this work.
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Conclusion
The Sharkfin pattern is an indicator that signifies a reversal in the market trend. It is formed when the market runs quickly in a specific direction and there is a quick reversal of the trend shifting the direction of the market into an opposite direction forming a 'v-shaped' pattern.
The sharkfin pattern should be complemented with the RSI indicator to confirm the trend revesrals shown in the charts.
Thanks to @cryptokraze for this eye-opening lecture. See you next season hopefully.
