4.55 The ABCD Pattern and It's Types

Shape of ABCD pattern. 

We’ll start our study of the harmonic price patterns with the ABCD patterns. These patterns are as interesting as they sound and quite simple to grasp, if you have your Fibonacci concepts clear. ABCD patterns consist of 3 legs; AB, BC and CD, and can have some variations as explained follows: 

 

The Classic ABCD Pattern

 

Classic bullish and bearish ABCD patterns. 

 

The Classic ABCD pattern basically comprises three legs, a movement from A to B, a corrective move from B to C and a third leg from C to D.

 

The corrective move BC would generally retrace from B to the Fibonacci 61.8% retracement level at C. Next, the third leg CD would generally extend to the Fibonacci 127.2% extension level from BC to D. As mentioned in the above diagram the move from B to C can also be 78.6% retracement of AB and in such case CD could be 161.8% extension of the move from B to C.

 

AB = CD Pattern

  

Bullish and bearish "AB = CD" patterns. 

 

The AB = CD pattern is a variation of the classical ABCD pattern and as the name suggests it has following characteristic:

 

  • Move from C to D = Move from A to B.

 

  • Time taken from the move from C to D = Time taken from A to B.

 

Please note that some sites would mention that the length AB needs to be equal to length CD. Please don't worry in case you are wondering about measuring those lengths on your trading charts. No one trades with a measuring tape in hand and what basically is to be seen is that the height from A to B (or the number of pips from A to B) need to be equal to height from C to D i.e. number of pips from C to D.

 

Extended ABCD Pattern

 

Extended bullish and bearish ABCD patterns. 

 

The extended ABCD pattern differs from the classic ABCD pattern in move from the point C to D. The characteristics of extended ABCD pattern are as follows:

 

  • Leg BC is either 61.8% retracement or 78.6% retracement of the move from A to B.

 

  • Leg CD is 127.2% or 161.8% extension of the move from A to B respectively. Please note that the leg CD of classic ABCD pattern was in relation to the move from B to C.

 

  • Time ratios from CD to AB are not mandatory but in case BC = 61.8% retracement of the move from A to B and the move from C to D is 127.2% extension of the move from A to B then the time from C to D may be approximately 127.2% of the time from A to B. If BC = 78.6% retracement of the move from A to B and the move from C to D is 161.8% extension of the move from A to B then the time from C to D may be approximately 161.8% of the time from A to B

 

Trading with ABCD Pattern

 

Regardless of the type of the ABCD pattern, point D would be the point to enter trades depending if the pattern is bearish or bullish, as shown in the above diagram. The stop-loss can be slightly below the level of support or resistance.

 

In the bearish pattern on the left, you would sell at point D. You would buy at point D in the bullish pattern on the right. 

 

   

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