The Sea Horse pattern is a variation of the ABC pattern which I discovered in 2005. It is related to the ABC pattern theory, and is quite reliable in trending markets. The “Sea Horse” pattern may be rare in daily or weekly charts, but it occurs frequently during intra-day trading. The primary difference between the ABC pattern and “Sea Horse” pattern is its trade setup, and the retracement ratios along with the angle of descent. The ABC pattern trade triggers after ABC pattern completion; whereas, in a “Sea Horse” pattern, the trade occurs after a full reversal and trend confirmation.
In an ABC pattern, the BC retracement occurs at the 0.61 8 to 0.786 range; whereas, in a “Sea Horse” pattern, the retracement occurs from 38% to 50% of the prior swing. In “Sea Horse” pattern, the angle of descent is much faster than ABC pattern, and the retracement will be at about 38% to 50% of the entire range. The trade-action point in the ABC pattern is after completion of the pattern, and in “Sea Horse” pattern, the trade-action point is after the price reversal and trading above the retracement at C level.
Trade: The “Sea Horse” pattern trade occurs after its price reverses, and trades above the retracement level. Wait for the prices to close above the retracement level at C, and enter a “long” trade above the high of the breakout bar.
Stop: Place a “stop” order below the “swing low” prior to the retracement level.
Target: Place a “target” (at F) 100% of the range from the retracement level to the swing low.
Trading Sea Horse Pattern
Trading Sea Horse Pattern
The example above shows a “Sea Horse” pattern from the Wynn resorts (WYNN) daily chart. WYNN traded from a high of $58 to $46 and formed the first phase of the “Sea Horse” pattern. Then it retraced to $52 before declining to $42 to complete the pattern. In November 2005, WYNN traded above the “Sea Horse” retracement level at C (at $5 1 SO) to give a long trading opportunity.
- Enter a “long” trade above the C level (at $52).
- Place a “stop” order below the low of the retracement at B level ($46).
- Place a “target” at 100% of range (from C to D) at E level to $60.75.
Trading Sea Horse Pattern
Trading Sea Horse Pattern
The example above shows a “Sea Horse” pattern from the Russell Emini (EM) 610 tick chart. On May 10, 2007, ER2 formed a “Sea Horse” pattern, and traded from 827 to 820. Later that day, ER2 reversed its downtrend and closed above the retracement C level (at 825). The BC range was 50% of AB swing.
- Enter a “long” trade above the high of the bar at E level (at 825.5).
- Place a “stop” order below the low of B level (at 822).
- Place a “target” at 100% of the range (from C to D) 4.5 points from E level to 829.