Education post 7/100 – How to trade ABCD Pattern?
The ABCD pattern (AB=CD) is one of the classic chart patterns which is repeated over and over again. The ABCD pattern shows perfect harmony between price and time and is also referred to as ‘measured moves’. It was developed by Scott Carney and Larry Pesavento after being originally discovered by H.M Gartley.
Within the ABCD patterns, there are 3 types as mentioned below.
Price and Time: Under this type of ABCD pattern the amount of distance and the time it takes for price to travel from A to B is equal to the time and distance from C to D
Classic ABCD: In this pattern, the BC is a retracement of 61.8% – 78.6% of AB, with CD being the extension leg of 127.2% to 161.8% (equal in price distance)
ABCD extension: CD leg is an extension of AB between 127.2% – 161.8%
Trading the ABCD bullish pattern
Swing points A and B form the highest high and the lowest low of the swing leg
When AB is identified, the next step is to plot BC
C must be lower than A and must be the intermediate high after the low point at B
C usually retraces to 61.8% or 78.6% of AB
In strong markets, C can trace only up to 38.2% or up to 50% of AB
Point D must be a new low below point B
CD must be 127.2% or 161.8% of AB or of CD
Buy at point D
Some variations to the rule include:
CD can be an extension of AB anywhere from 1.272% up to 2.00% and even greater
CD leg usually slopes at an angle that is wider than the AB leg
When there is a gap formed after point C, it indicates that the CD leg will be much larger than the AB leg
Appearance of wide range bars near point C is also an indication that CD will be an extended leg
In most cases, AB and CD are equal in time and price
If the CD leg is covered within just a few price bars as compared to the AB leg, then it is an indication that the CD leg will be an extension of AB
The opposite rules apply for bearish ABCD patterns. The chart below illustrates a Buy trade example where we notice that BC retraced close to 61.8% (at 59.4%) after which CD travelled close to 139.6% of the AB leg. After the D point has been identified, a buy order would be place at or above the high of the candle at point D.
Traders should note that the ABCD count should not be confused with the ABC corrective waves from the Elliott Wave count.
Within the ABCD patterns, there are 3 types as mentioned below.
Price and Time: Under this type of ABCD pattern the amount of distance and the time it takes for price to travel from A to B is equal to the time and distance from C to D
Classic ABCD: In this pattern, the BC is a retracement of 61.8% – 78.6% of AB, with CD being the extension leg of 127.2% to 161.8% (equal in price distance)
ABCD extension: CD leg is an extension of AB between 127.2% – 161.8%
Trading the ABCD bullish pattern
Swing points A and B form the highest high and the lowest low of the swing leg
When AB is identified, the next step is to plot BC
C must be lower than A and must be the intermediate high after the low point at B
C usually retraces to 61.8% or 78.6% of AB
In strong markets, C can trace only up to 38.2% or up to 50% of AB
Point D must be a new low below point B
CD must be 127.2% or 161.8% of AB or of CD
Buy at point D
Some variations to the rule include:
CD can be an extension of AB anywhere from 1.272% up to 2.00% and even greater
CD leg usually slopes at an angle that is wider than the AB leg
When there is a gap formed after point C, it indicates that the CD leg will be much larger than the AB leg
Appearance of wide range bars near point C is also an indication that CD will be an extended leg
In most cases, AB and CD are equal in time and price
If the CD leg is covered within just a few price bars as compared to the AB leg, then it is an indication that the CD leg will be an extension of AB
The opposite rules apply for bearish ABCD patterns. The chart below illustrates a Buy trade example where we notice that BC retraced close to 61.8% (at 59.4%) after which CD travelled close to 139.6% of the AB leg. After the D point has been identified, a buy order would be place at or above the high of the candle at point D.
Traders should note that the ABCD count should not be confused with the ABC corrective waves from the Elliott Wave count.
