ABCD Pattern: What It Is, How to Trade It, & Examples

If support is established at C, then look for a new high which will be D. Your short entry will be when prices start to come off that new high with a stop above highs. The pattern can be used to predict either a bullish or bearish reversal Calculating Return on Investment for beginners depending on the orientation. It is particularly important as it appears very frequently in stock charts. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools.

It looks like a diagonal lightning bolt and can indicate an upcoming trading opportunity. When there’s an ABCD extension a bullish market makes higher highs than anticipated by the ideal pattern. In a bearish trend it’s the opposite, and the trend makes lower lows than otherwise predicted.

Finding the ABCD pattern

It then consolidated most of the day and formed the C leg. It broke out late afternoon, which was the entry signal, and rallied 11% from the breakout level. The ABCD pattern helps give traders a framework for where to risk and enter their trades.

• In addition,StocksToTrade accepts no liability whatsoever for any direct or consequential loss arising from any useof this information.
• A bearish ABCD pattern is formed after an uptrend and signals a potential bearish reversal at a certain level.
• The ABCD pattern is a highly recognizable value pattern that happens in stocks across the globe every day.
• Once you are done with all the checks, go to the preferred trading platform, and start trading.
• At a minimum, these studies indicate at least 50% of aspiring day traders will not be profitable.
• The price move, which is expected to appear after CD, should reach the 100% Fibonacci Retracement of CD.

Stay in the trade for a minimum price move equal to the size of CD. Confirm the validity of the pattern with the size of the AB and CD, as well as with the respective Fibonacci levels. Bullish ABCD – AB is bearish, BC is bullish, CD is bearish. Bearish ABCD – AB is bullish, BC is bearish, CD is bullish. This time, we have pointed the proper location of the stop loss order with the thick red line on the image. Please try again later or contact We apologize for the inconvenience.

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This time, we have the 4-hour USD/JPY Forex pair on the chart. The blue lines on the image outlines the pattern from point A to point D. The CD move finishes in the area of the 127.2% Fibonacci extension of the BC move and the price then bounces upwards. Once you have noticed this, it’s time to execute a long trade. You should place your stop loss order below the lowest point of the CD swing as shown with the red thick line on the chart. It’s also important to observe volume when looking for ABCD patterns.

Once you are done with all the checks, go to the preferred trading platform, and start trading. This is for informational purposes only as StocksToTrade is not registered as a securities broker-dealeror an investment adviser. As with any pattern, only trade the best setups and at the right time of day. The ABCD pattern is one of the most basic patterns to learn.

Browsing the internet, one comes across many different variations of the original harmonic pattern. What these patterns have in common is the adoption of Fibonacci ratios as a prerequisite. After a few tests of the 127.2% Fibonacci extension, GBP/USD price starts increasing.

What is the AB=CD Pattern

In other words, the price action which comes after CD should equal CD in size as shown on the sketch above. However, this is the minimum potential of the formation. In other words, the price could extend its move further and it would be to our advantage if we were to keep a portion of the trade open in order Is eToro a Brokerage We Can Trust to catch a bigger move. Familiarity with the wide variety of forex trading strategies may help traders adapt and improve their success rates in ever-changing market conditions. In contrast to reversals, trend-following strategies use the ABCD to seek profits in concert with a directional move in price.

The stock gapped up over 15% at the market open the following day. The risks of loss from investing in CFDs can be substantial and the value of your investments may fluctuate. You should consider whether you understand how this product works, and whether you can afford to take the high risk of losing your money. Once you’ve conducted thorough research and composed a sound trading plan, it’s important to exercise patience and discipline.

A low volume breakout shows there isn’t a lot of interest in the stock. It can quickly fake out and form a double top instead of a solid D leg. It’s one thing to know when to trade, but it’s just as important to know when not to trade. Check off all the boxes of your trading checklist before trading a stock. It was on its second green day and up over 300% times from its first green day lows. Due to all this, buying the C leg in anticipation of an overnight gap-up creating the D leg was a great setup.

We recommend using these levels together with support and resistance you identify at the chart using various tools of technical analysis. Don’t forget to have a look at senior timeframes when you hunt for support and resistance levels. Identifying the indicator on a price chart is the first step to opening your position. Multiday charts generally offer insight into the behaviour of stocks and markets over an extended period of time. 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.

How to Trade The AB=CD Harmonic Pattern

Since the figure above represents a bullish ABCD pattern, we would look to buy the USD/JPY Forex pair after the price bounces from the 127.2% extension of BC. As you probably have noticed, we have a bullish ABCD pattern on the chart here, because the AB and the CD swings point downwards. In this manner, we expect that this valid ABCD pattern leads to a bullish price move.

Top Pullback Trading StrategiesPullback trading strategies provide traders with ideal entry points to trade along with the existing trend. Your exact stop-loss location should be beyond the extreme ABCD pattern price. Your results may differ materially from those expressed or utilized by Warrior Trading due to a number of factors.

Each pattern leg is usually within a range of 3-13 bars/candles. If the range of bars is smaller, this indicates to the investor to look at a longer time period to find the pattern. Point D on the chart must be a new lower price below the previous price point at B to signal the pattern confirmation.

Since it is a unique chart formation, it has its own set of rules for trading. If you learn how to implement this set of rules, you can expect to trade the ABCD chart pattern with a positive edge. This pattern appears frequently What is an ETF in stock charts and is easy to spot once you know what you’re looking for. More importantly, it can help you time your buying and selling more effectively. It can also instill confidence in your trading decisions.

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The pattern is also widely used in the forex market to determine strong support and resistance levels. One of the most classic chart patterns, the ABCD pattern represents the perfect harmony between price and time. It can be used to identify trading opportunities in the Forex market, weighing the risks and rewards before making a trade, and it can even form the basis for other patterns. The range of results in these three studies exemplify the challenge of determining a definitive success rate for day traders.