8/11/2023 0 Comments Abcd trading patternThe AB=CD chart pattern needs to conform to specific Fibonacci ratios. Therefore, the same trading rules are applied to each of them, but in the opposite direction. And only when the CD leg reaches a distance equal to the AB leg, are we looking to initiate a trade.Īs you see, the bullish and the bearish ABCD patterns are a mirror image of each other. Take note that there are three price moves prior to the confirmed AB=CD pattern, the AB leg, the BC leg and the CD leg. The bearish potential of the pattern is shown with the blue arrow on the sketch above. When you get these characteristics on the graph, you can expect the price to reverse again creating a new bearish run. The BC move then gets reversed by a new bullish move (CD), which goes above the top at point B. The pattern begins with a bullish AB line, which gets reversed by a new bearish move (BC). The Bearish AB=CD chart pattern is absolutely the same as the bullish AB=CD, but everything is upside down. This is shown with the blue arrow on the chart. After the price completes the CD price move, we expect a reversal and a price increase. This is a standard bullish AB=CD pattern. The BC move then gets reversed into a new bearish move (CD), which goes below the bottom created at point B. The Bullish ABCD pattern starts with a price decrease (AB), followed by a reversal and an increase (BC). There are two types of ABCD patterns – bullish AB=CD and bearish AB=CD Bullish AB=CD The idea is to be in the market early with a trading position just after the reversal of the CD move. When the AB=CD pattern is confirmed, traders will look to set entry points on the chart right at the beginning of the emerging reversal after the CD move. At the same time, BC and CD should respond to specific Fibonacci levels. And so when the CD leg reaches an equivalent distance to the AB leg, we expect a reversal of the CD price move. The price action behavior of the ABCD pattern starts with price moving in new direction (A) which later creates an important swing level (B), then retraces a portion of the A leg (C), and finally resumes to take out the important swing created at B, and continues until it reaches a distance equivalent to AB (D). Let’s take a look now at what the AB=CD pattern looks like. In addition the ABCD formation is much easier to recognize on the price chart. One of the reasons for this is that it has significantly less requirements than most of the other harmonic setups. The ABCD is considered the simplest harmonic pattern. Some traders refer to the ABCD pattern as AB=CD, so for the purposes of this discussion, we use the terms interchangeably. The ABCD pattern is part of the well-known harmonic group of patterns. Click Here To Download What is the AB=CD Pattern There are several variations, based on CD being an extension of AB such as the 1.27 AB=CD or the 1.618 AB=CD pattern.Download the short printable PDF version summarizing the key points of this lesson…. TradingView has a smart ABCD Pattern drawing tool that allows users to visually identify this pattern on a chart. Conservative traders may look for additional confirmation before entering a trade, for instance an aligning RSI value or a specific candlestick pointing at a reversal. A common stop level is behind a structure level beyond the D point. The first target would be the 382 retracement of AD and the second target the 618 retracement of AD. When the BC projection and the AB=CD completion converge closely and define a small area, the chance of a reversal increases. The C point must retrace to either a 0.618 or 0.786 and the BC projection is either 1.27 or 1.618. It has specific Fibonacci measurements of each point within its structure, eliminating room for flexible interpretation. The AB=CD pattern is easy to identify on charts and consists of 2 equivalent price legs.
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