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The Basic 5: Keys To Unlocking The ABC Pattern

Conversely, in a downtrend, sellers are in control the entire way from A to D. However, like the long example, the idea is that once sellers have a “three-wave” move down, it will likely result in a near-term reversal pattern at D. Thus, the classical example of an abcd pattern predicts that in a downtrend “D” is an area to go long.

  1. By the time either of these types of traders have drawn Fibonacci levels for each pivot point in each time frame, both often have a real mess on their hands.
  2. So, let’s go step-by-step and find out how you can trade with the pattern.
  3. However, as with all trading strategies, the ABC pattern is not foolproof and should be employed with thorough research and risk management practices in place.
  4. Traders use the ABC chart pattern to anticipate potential price targets and entry/exit points.

P.S. The price was below the 20 MA when we entered, in this case, the trade is still valid and you’d wait for the price to go above it. Waiting for the whole ABCD pattern is absolutely key to keeping those trading gears turning smoothly. It’s a pattern that belongs to the harmonic pattern family introduced by H.M Gartley.


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. I know I say this time and time again, but you must have all your ducks in a row before jumping into a trade. There are many ways to play with patterns and children usually love to make them. The ABC pattern is a set sequence of three events, in our case three pictures, that repeat in the same order. Being able to spot and continue a pattern is a great early math skill often taught in preschool and kindergarten.


If we take out the 50% profit around this level and let the rest of it run, we give ourselves a chance to win more pips without any risk. If the price produces an ABC pattern, in 70% cases, it makes a new higher high or lower low. Futures trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the investor’s initial investment. Nothing contained herein is a solicitation or an offer to buy or sell futures, options, or forex. Past performance is not necessarily indicative of future results.

Traders shall set their stop loss below the level of support. The last swing high (or low) often becomes a big factor. The swing legs (AB and BC) in the ABC pattern are generally in symmetrical proportions both in price and time with consistent slopes. The tradable CD leg has a harmonic relation with symmetry for AB and BC swings. The ABC bullish structures are formed after a prolonged prior downtrend or consolidation trends, whereas bearish ABC patterns are formed after a prior uptrend.

How to Trade the ABC?

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It may still head towards the North if it makes a bullish breakout after consolidation. Now, we may consider using a trailing stop setting below the last candle (breakout candle). We must be patient and hold the trade until the price produces a strong bearish reversal candle. The price often roams around and even makes a reversal at this point.

Use StocksToTrade’s ‘Top Percent Gainers’ scan in the morning. 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.

Each day our team does live streaming where we focus on real-time group mentoring, coaching, and stock training. We teach day trading stocks, options or futures, as well as swing trading. The following setup tends to emerge in the market at some point on many, but not all, days.

Chart Illustrations

By using indicators like Fibonnaci extensions and retracement… Trading the ABC pattern requires a thorough understanding of chart patterns, harmonic relationships, and Fibonacci retracements. Remember, practice and continuous learning are key to mastering this valuable trading tool.

These inflection points emerge from key swing highs and lows at various levels, along with their correction waves, to create distinct swings. This symmetry is not just in terms of time but also in price movements. It provides a more comprehensive view https://forex-review.net/ of market trends and potential reversals. By analyzing these swings, traders can identify the Potential Completion Zone (PCZ) of the pattern. It’s a region where the pattern is likely to complete and where the market may experience a reversal.

The A wave is the initial trend wave, where the price moves in the direction of the prevailing trend. This wave represents the first impulse of buying or selling pressure. The B wave is the correction wave, where the price retraces part of the initial move. This wave is often seen as a temporary counter-trend movement before the trend continues. The C wave is the final trend wave, where the price resumes in the direction of the initial trend but with greater momentum.

The significance of the ABC chart pattern lies in its ability to provide traders with valuable insights into market trends and potential trading opportunities. By identifying and analyzing the ABC pattern, traders can make more informed decisions about when to enter or exit trades. Illustrations of ABC patterns in technical analysis are impactful as they serve as guides for future trading decisions.

The ABC pattern is a widely recognized chart formation that signals the potential trend reversal in the stock market. It illustrates the psychology of market participants through distinct peaks and troughs. While the ABC pattern is commonly used in stock and forex markets, it can be applied across a variety of financial instruments including commodities and indexes. Its versatility and straightforward structure make it a popular tool among technical analysts. However, as with all trading strategies, the ABC pattern is not foolproof and should be employed with thorough research and risk management practices in place. In a downward or bearish ABC chart pattern, the A point is the highest high, the B point is a lower high, and the C point is an even lower high.

The end-of-day trader may also use 60- and 90-minute time frames as well as daily and weekly data. By the time either of these types of traders have drawn Fibonacci levels for each pivot point in each time frame, both often have a real mess on their hands. The lines AB and CD are called “legs”, while the line BC is referred to as a correction or a retracement. A bullish lmfx review ABCD pattern follows a downtrend and means that a reversal to the upside is likely. The ABCD trading pattern is one of the easiest harmonic patterns to recognise on a price chart, indicated by a four point movement. By understanding how to identify and trade the ABC chart pattern, traders can gain an edge in the market and make more informed trading decisions.

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