The "bullish AB=CD" pattern is another harmonic pattern used in technical analysis to identify potential trend reversals in financial markets, particularly in stocks, forex, and commodities. It's based on the Fibonacci ratios and consists of two legs that are equal in terms of price and time.
Here's a breakdown of its characteristics:
1. **AB Leg**: The initial leg of the pattern, marked from point A to point B. This leg represents the initial impulse move in the direction of the prevailing trend.
2. **BC Leg**: After the AB leg, there's a corrective move from point B to point C. This leg usually retraces a portion of the AB leg, often to a Fibonacci retracement level such as 38.2%, 50%, or 61.8%.
3. **CD Leg**: The final leg of the pattern, from point C to point D. This leg mirrors the AB leg both in terms of price and time. In other words, the distance from point B to point C should be equal to the distance from point C to point D. The CD leg typically follows the same slope as the AB leg.
When the AB=CD pattern forms, traders interpret it as a potential reversal signal. In a bullish AB=CD pattern, they anticipate the price to reverse higher after completing the CD leg. However, it's important to confirm the pattern with other technical indicators or price action signals before making trading decisions. Like any trading strategy, it's not without its limitations and should be used in conjunction with risk management techniques.
Here's a breakdown of its characteristics:
1. **AB Leg**: The initial leg of the pattern, marked from point A to point B. This leg represents the initial impulse move in the direction of the prevailing trend.
2. **BC Leg**: After the AB leg, there's a corrective move from point B to point C. This leg usually retraces a portion of the AB leg, often to a Fibonacci retracement level such as 38.2%, 50%, or 61.8%.
3. **CD Leg**: The final leg of the pattern, from point C to point D. This leg mirrors the AB leg both in terms of price and time. In other words, the distance from point B to point C should be equal to the distance from point C to point D. The CD leg typically follows the same slope as the AB leg.
When the AB=CD pattern forms, traders interpret it as a potential reversal signal. In a bullish AB=CD pattern, they anticipate the price to reverse higher after completing the CD leg. However, it's important to confirm the pattern with other technical indicators or price action signals before making trading decisions. Like any trading strategy, it's not without its limitations and should be used in conjunction with risk management techniques.