The example below shows a bullish Bat pattern on the EUR/USD four-hour price chart. The numbers mark the retracement or extensions that fall within the parameters of the pattern. To the right of the pattern, a Fibonacci retracement shows possible profit target levels, of which the common targets of 0.50 and 1.0 were reached.
With the bullish Bat pattern, it looks like a stretched-out “M”. The price rises, forming an X-to-A leg higher, then pulls back, retracing less than 0.618 of XA. Here, the ideal retracement is 0.382 to 0.50. Then there is another move up as shown by “BC”, which retraces 0.382 to 0.886 of wave AB. This is followed by a further down wave called CD, which is a 1.618 to 2.618 extension of BC.
Point D should be near a 0.886 retracement of XA. The price is expected to rally from this potential reversal zone. Many traders wait for the price to start rising before entering. A stop-loss order is placed below the recent swing low near D or below X.
Profit targets are based on Fibonacci ratios, between points A and D, potentially extending higher than A. Popular take-profit levels are 0.50, 0.618, 1 (at A) and 1.618 (which is above A), as these could act as support and resistance levels in the future.