The Crab Pattern is one of the most powerful harmonic patterns in technical analysis, known for identifying major reversal zones with extreme precision. Discovered by Scott Carney in 2000, the Crab Pattern allows traders to anticipate price turning points with tight stop-loss levels and high reward potential. It is widely used in forex, crypto, and stock trading.

In this guide, we’ll explore the structure of the Crab Pattern, how to identify it, trading strategies, and tips to integrate it into your trading plan for better results.

What is the Crab Pattern?

The Crab Pattern is a harmonic reversal pattern composed of five points: X, A, B, C, and D. It provides a very high-risk-reward ratio setup due to its extended XA leg projection at 161.8%.

It can appear in both bullish and bearish forms:

• A bullish Crab suggests a potential price reversal to the upside.
• A bearish Crab predicts a possible reversal to the downside.

Structure and Fibonacci Ratios of the Crab Pattern

The Crab Pattern consists of four legs: XA, AB, BC, and CD, each defined by specific Fibonacci measurements:

The most important aspect of the Crab Pattern is that point D lies at a 161.8% extension of the XA leg, offering a precise reversal zone known as the Potential Reversal Zone (PRZ).

How to Identify the Crab Pattern

Step-by-Step Identification

1. XA Leg: The initial sharp price move.
2. AB Leg: Price retraces 38.2% to 61.8% of XA.
3. BC Leg: Price moves in the opposite direction, retracing 38.2% to 88.6% of AB.
4. CD Leg: This is the longest leg and extends 224% to 361.8% of BC and 161.8% of XA.

Confirmation Tools

• RSI or MACD Divergence: Use momentum indicators at point D to confirm a likely reversal.
• Candlestick Reversal Patterns: Look for pin bars, engulfing candles, or doji at point D.
• Volume Patterns: Spike in volume around point D can confirm a strong reversal.

Trading the Crab Pattern

Entry Point

• Enter near point D, which marks the Potential Reversal Zone (PRZ).
• Confirm the reversal with price action or indicator signals before entering.

Stop Loss Placement

• Place your stop loss slightly beyond point D to account for possible false breakouts.
• Use a volatility buffer (e.g., 10-15 pips in forex or 2-3% in stocks).

Take Profit Levels

Use Fibonacci retracements of the CD leg to place your profit targets:

• Target 1: 38.2% retracement of CD
• Target 2: 61.8% retracement of CD
• Target 3: Full retracement back to point C or A

Example of a Bullish Crab Setup

1. XA: Price moves from $100 to $120
2. AB: Retraces 50% to $110
3. BC: Retraces 61.8% of AB to $116
4. CD: Extends to $132 (161.8% of XA)

Entry: $132
Stop Loss: $134
Target 1: $126 (38.2% retracement of CD)
Target 2: $

Disclaimer: This article is for educational purposes only and should not be considered financial advice. Read our full disclaimer.