Let us look at a few ABCD pattern examples to understand the concept better. Let us look at the TradingView chart below to understand the process better. It is built from the time of the last leg in the zone from 1.38CD up to 2.681CD.

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We can use the ABCD Pattern tool to see the levels straight away, and we can see the exact levels. It is important to note that the above 61.8% – 78.6% and 127% – 161% indicate an ideal pattern. In strongly trending markets, like the one we are looking at, it is totally normal that the pattern is deviating a bit. The bearish ABCD pattern is the exact opposite of the bullish ABCD pattern. It starts with a bullish pattern, at point AB initially, where point A is at the bottom and B is the increased price swing.

This allows you to refine your ability to spot ABCD patterns without risking real money. The bullish ABCD pattern commences with a price fall or a lower price. It is identified through a zig-zag pattern that starts at A, which extends to the price swing that we call B. The pattern is then followed by a reverse and rise in price, known as BC, which is then reversed to a bearish move (CD), completing the pattern. Once the price completes the CD price swing, there is a reversal and an increase in the price once the price touches point D. The ABCD pattern works in the trending markets, but it can give false signals in the ranging markets.

Example of trading the bullish ABCD pattern

• Per the Fibonacci sequence, Drive 2 will be 61.8% of Drive 1 and Drive 3 aims for a 127% measured move.
• Considering the ABCD pattern and the price’s divergence from the Bollinger Bands, we strategically opt to execute a buy trade at point D (39,400).
• Also, they can use Fibonacci retracement levels and tools for validating the pattern.
• A bearish ABCD pattern has formed on the H1 chart of the S&P 500 index (US 500).
• It consists of two equivalent price legs and helps the trader identify when the currency price is going to change directions.
• Stop Loss is set just below point D, and the landmarks for profit-taking are points C, A, and above if there is a strong upward movement.

In this case, the D point is the market entry level, stop-loss is placed above the D level, and profit targets are placed at the C and A levels. The three price swings include a drop in price from the A to B level, a correction from B to C level, and another decrease from point C to D level. Ultimately, it creates a zigzag pattern where the D point is the ultimate entry point. Then, after drawing the ABCD pattern, you need to look for point D, where you enter a position in the opposite direction of the CD line. Additionally, it is always important to be aware of market conditions, and price action behavior, and include fundamental analysis in your trading strategy.

IC Markets are my top choice as I find they have tight spreads, low commission fees, quick execution speeds and excellent customer support. Each part of the pattern is like Fibonacci numbers and represents short-term consolidation against the trend. Traders utilize the Fibonacci tool to find the pattern on the chart.

The Supply and Demand Indicator can help traders identify potential levels of support and resistance in the market. 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. Post identifying the AB leg, ascertain the retracement’s span from B to C. After the BC retracement, the price trend should increase again. As we already established, the ideal retracement would be within the levels of 61.8% and 78.6% for point C.

How to Trade The AB=CD Harmonic Pattern

We will also cover common mistakes traders make when using the pattern and provide advanced techniques for more experienced traders. By the end of this article, you will have a thorough understanding of the ABCD pattern and be able to use it effectively in your trading. Each of the above legs depicts three trends or price swings in a row, computed utilizing the Fibonacci ratio. If traders can observe and interpret the pattern efficiently, they can make decisions that can lead to significant financial gains.

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Extending from point B, the price renews its downward trajectory and shapes another swing low at C, which is around 1755. Positioned typically higher than point A but lower than point B, C takes on the role of a new support level. Here, we start checking for the Fibonacci levels, and the first one comes in perfectly at around 77%.

Bearish ABCD Pattern with RSI and Tweezer Tops Pattern

• Traders often mistook the price highs and lows with the ABCD pattern without determining its validity.
• When the market ranges between support and resistance without breaking out, it’s known as a consolidation phase.
• Imagine it like solving a puzzle—when we put different pieces together, we get a clearer picture.
• By analyzing the size of the gaps and the strength of the reversal, traders can estimate where the price might move and set their exit points accordingly.
• Many traders use this pattern in conjunction with other technical indicators, such as volume analysis or trendlines, to confirm the potential for a reversal.
• Market conditions, news events, and other factors can all influence the outcome of the pattern.

The core of both setups is a 3-swing harmonic sequence reflecting a trend, retracement, and continuation. Plotting the Fibonacci retracement tool between these swings gives reversal levels to watch. Frankly, perhaps the most challenging part of using the ABCD trading pattern is to draw it on a price chart. Obviously, measuring the numbers independently is not something you can do regularly, and drawing the lines is not ideal as well. For that reason, you can simply use a built-in indicator on your trading platform, set the numbers, and automatically draw the ABCD pattern to a chart. As you can see, much like abcd forex pattern the bullish ABCD pattern, the bullish AB line is 61.8% of the AC line, and the CD leg is 127.2% of the BD leg.

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It forms as the price moves from point A to B, retraces from B to C, and then continues upward from C to D. I want to emphasize, that the use of only harmonic patterns alone without additional confirming indicators involves high risks. Firstly, it gives structure to the chaos of the financial market. The pattern is like a language that stocks speak, and once you understand it, you can anticipate their moves. Now that you know how to properly identify these high-probability ABCD patterns and avoid common mistakes, it’s time to put it into practice. Head over to Pepperstone and get for Free your demo account to enjoy award-winning trading infrastructure for your ABCD trading.

Then, the price falls from B to C and finally rises again from C to D. At this point, when the pattern is confirmed with Fibonacci rules, a reversal is likely to occur. As for stop-loss placement, you can place your stop-loss order below the D point as a break below this level invalidates the ABCD pattern. With that in mind, let’s see two examples of the ABCD pattern – bullish and bearish. Forex trading involves significant risk of loss and is not suitable for all investors.

As you can see here, point C is around 58% falling into the pattern. In addition to these technical indicators, traders can use a Trade Panel to automate their trading decisions. This can include setting up automated trailing stop losses, breakeven points, and partial take profits. By using a trade panel, traders can reduce the impact of emotions on their trading decisions and improve their overall trading performance.

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Typically, this would not clearly constitute an ABCD pattern as the Fibonacci Levels for point D are not within the bounds. However, you can trade the pattern in cases such as this one, where you have a strongly trending market with almost 30 consecutive Heikin Ashi candles. Just be very careful when trading it to wait for the correct reversal once the trend stops. That is why it is crucial to use other indicators and patterns in combination and not solely rely on one indicator. He was observing the 1-day chart of the asset, and while doing so, he noticed the formation of a bullish ABCD pattern.

Our rationale centres on D’s plausible role as a support level within the pattern. The alignment of the ABCD pattern and the price surpassing the Bollinger Bands implies an impending shift in the ongoing price trend. This would have been a beautiful trade, going from to almost 68000, giving you a fantastic profit. Our journey begins at point A, marked at 53,000, symbolizing a robust swing high.