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What Is an ABCD Trading Pattern? Market Pulse

ABCD Chart Pattern

ECN, STP, Crypto, Micro, PAMM accounts, dependent on jurisdiction. Note that the ratios won’t always be perfect, so allowing for slight variability above or below the defined ratios is acceptable. Notice that a 61.8% retracement at the point C tends to result in the 161.8% projection of BC, while a 78.6% retracement at the C point will lead to the 127% projection. You should do what everyone is doing since a trend is your buddy.

What is the most famous chart pattern?

Triangles are among the most popular chart patterns used in technical analysis since they occur frequently compared to other patterns. The three most common types of triangles are symmetrical triangles, ascending triangles, and descending triangles.

Watch this video by our trading analysts to learn more about identifying and trading the harmonic ABCD pattern. The bullish ABCD pattern forms during a downward trend and indicates a potential price reversal,  meaning the beginning of a bullish trend. All the above confirm the pattern and offer an entry-level for a trading position at point D. Given that trading the ABCDs usually relies on setting orders at predicted reversal points, consider looking for extra confirmation to filter potential losing trades.

How to trade using the ABCD pattern

A stock that keeps grinding higher all day is not an ABCD pattern stock. The flag pattern is a bullish continuation pattern that can indicate that the market is about to continue in the same direction. It is characterized by two ascending or descending trend lines that are parallel to each other. This will help you take profits off the table when the market moves in your favor. For example, you can use a trailing stop loss to lock in profits as the market moves in your favor. A second disadvantage stems from the fact that stock price moves are rarely as neat and precise as those shown in our images of the ABCD pattern.

What is the ABCD pattern of Fibonacci retracement?

ABCD is a Fibonacci pattern that is a combination of 3 Point Extension and 3 Point Retracement. It is defined by four points A, B, C, and D, of which: Points A, B, and С form a 3 Point Extension pattern. Points B, C, and D form a 3 Point Retracement pattern.

Below, you’ll find three factors of confluence you can use to confirm your entries. The rules for trading each of them are as explained above. Make sure that you know how to apply Fibonacci tools correctly an follow all our tips. The more confirmation you have for your trade, the better. With this example, you have the CD forming a perfect bear flag pattern. You would take the stock or ETF short on the breakdown, as seen below, placing your stop above the most recent high inside the pullback.

ABCD Pattern Trading Rules

It requires a minimal amount of trading capital while providing the possibility of a much larger profit if point D does turn out to signal the beginning of a new primary trend. A second advantage that the pattern offers is a trade entry with clearly defined and limited risk. Running an initial stop-loss order just on the opposite side of point D gives traders the chance to take a low risk trade.

ABCD Chart Pattern

The pattern might not be the result of regular trading action. It might be the result of external factors that could make the setup more volatile than desired. ABCD pattern starts with a strong upward move because buyers are aggressively buying.

Advantages and Disadvantages of Using ABCD Patterns

The initial intrada swing from A to B consolidates briefly in B to C. Then, once the C to D portion of the move is complete, it often signals a bearish reversal. From A-B and C-D bulls are pushing the stock higher and higher with aggressive demand. It is also why the consolidation in C produces a higher low. The final benefit of using the ABCD pattern is that it can help you exit trades with a higher profit potential. This is because the pattern can help you identify key levels where the market is likely to reverse.

The higher the volume on the breakout, the better the odds are of it working. While this wasn’t a huge move, options traders could have played this with call options. If the stock looks exceptionally strong, you could sell half at your target and let the rest run. Set an alert for when the stock approaches the top of the A leg in the afternoon. This lets you be ready for breakouts without having to watch every tick.