#15 - ABCD Pattern : Harmonic Pattern
(reading time = 8 minutes)
📶 What is the ABCD Trading Pattern? 📶
+ The ABCD pattern is an easy-to-identify chart pattern that consists of two equivalent price legs.
+ It is a harmonic pattern that helps traders predict when the price of a stock is about to change direction.
+ The pattern can be used to predict either a bullish or bearish reversal depending on the orientation.
+ It is particularly important as it appears very frequently in stock charts.
🔮 How to identify the ABCD Pattern 🔮
+ The bearish pattern begins with a strong upward move – initial spike (A), during which buyers are aggressively buying thus pushing the stock price to it high-of-day.
+ Inevitably, buyers start to sell their shares in order to take profits. Therefore, we end up seeing the spike, followed by a healthy pullback.
+ Once sellers are overpowered by buyers, the pattern establishes an intraday low (C) as the price falls.
+ At this point, you should not enter the trade since you aren’t sure where the dip of the pullback is going to be.
+ When price make a new high (D) then you want to look for resistance for a possible short entry.
📶 Importance of ABCD trading pattern 📶
+ The ABCD pattern is important to traders for a number of reasons:
+ Traders can use it to identify trading opportunities in various markets, in any market condition, and on any timeframe
+ It is the basis of all other patterns.
+ It can be used to weigh the risks versus rewards before making a trade
+ It offers an excellent risk-reward and a high winning percentage
+ The convergence of several ABCD patterns (across multiple timeframes or within the same timeframe) provides a powerful trade signal
⚠️ Details of the ABCD Pattern ⚠️
+ Each ABCD trading pattern has both a bullish and bearish version.
+ An ascending ABCD pattern is BEARISH , while a descending ABCD pattern is considered BULLISH .
+ For both versions, the lines AB and CD are called the legs while BC is known as the retracement or correction.
+ While there are many various ways to implement entry and exit strategies, there are a number of things that traders ought to consider when using the ABCD pattern.
📶 THE BULLISH HARMONIC A-B-C-D PATTERN 📶
+ The bullish harmonic pattern specifications;
AB=CD
BC retraces 0.618 of AB
CD is 1.272 extension of BC
Equal time of duration for AB and CD
Trade Rules
+ Buy signal is after the completion of the pattern at D.
+ Minimum target profit is at B
Stop loss slightly below D
FROM CHART (REFER EXAMPLE)
+ The Buy signal zone is at D. We put Stop loss just below the entry trigger candlesticks.
+ The first profit target is at 0.786 extension level and second profit target is at 0.618 Fibonacci extension level.
📶 THE BEARISH ABCD HARMONIC PATTERN 📶
+ Bearish ABCD harmonic pattern has the same specifications as the bullish harmonic pattern.
+ The major difference here is that bearish harmonic triggers sell signals.
+ The bearish harmonic pattern specifications;
AB=CD
BC retraces 0.618 of AB
CD is 1.272 extension of BC
+ Equal time of duration for AB and CD
Trade Rules
+ Sell signal is after the completion of the pattern at D.
+ Minimum target profit is at B
+ Stop loss slightly above D
FROM CHART (REFER EXAMPLE)
+ The Sell signal zone is at D. We set Stop loss just above the entry trigger candlesticks.
+ The first profit target is at 0.786 extension level and second profit target is at 0.618 Fibonacci extension level as indicated above.
🎯 Bottom Line 🎯
+ Traders know that the market is likely to reverse direction after a pronounced trend.
+ ABCD pattern traders try to identify the second time when a trend loses steam and may reverse.
+ In short, they are looking for an opportunity to buy in a market that is falling and looking for a short sell opportunity in a market that is rising.
+ The ABCD pattern is a blend of time, price, and shape.
+ When all three merge at one point, the pattern forms an electric move that traders can rely on to spot potential reversal zones so they can jump back in the direction of the overall trend.
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