How to Trade the AB=CD Harmonic Pattern Trading Strategy

They believe that prices will continue to rise, and they can sell when the price peaks. ABCD pattern shows a visual representation of the harmony between time and price. It refers to a geometric chart that shows you the best time to enter or exit a trade in the forex market. Note that changing the chart’s visible range will recalculate the indicator. We will help to challenge your ideas, skills, and perceptions of the stock market. Every day people join our community and we welcome them with open arms.

It is common for traders to wait till +dmi and -dmi crosses over before making a trade. However, most traders do not think it wise to depend solely on this indicator. It’s essential to consider other influences and trend indicators before making a trade. Forex traders confirm this reversal strategy through the use of technical indicators like DMI and MACD.


We have entered the market at point D, and the stop-loss is placed just below the D point. As you can see, we went for smaller stops, and there is a reason behind it. If the price action goes below point D, the pattern automatically gets invalid.

  • As I mentioned, there are specific Fibonacci ratios which traders use to identify the abcd patterns.
  • An inverse head and shoulders is an upside-down head and shoulders pattern.
  • After you confirm the pattern, you should enter the market at the moment when the price action during the CD move bounces from the 127.2% extension of the BC move.
  • Once you know the stock retraced 50% of the AB move, take the reciprocal of this (1/0.5 or 2) and multiply the CB leg by this value and subtract it from the high at C.
  • Alternatively, you can place a limit order at or just below the broken neckline.
  • Forex traders use this to identify the best time to buy or sell in a trade.

In my tests, I used 1% because this pattern occurs so frequently, a larger percentage is not necessary. The same is in force with the bullish ABCD pattern. The difference though is that everything will be upside down. You can select the length as an input to how many bars to look back for the whole calculation. The green bars represent the bullish values and the red bars the bearish values.

What is the AB=CD Pattern

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. It provides deeper insights into trends by standardizing the SuperTrend with respect to its upper and lower bounds, allowing traders to identify potential reversals and… There are dozens of bullish chart patterns, not to mention dozens of ways to trade them.

The pattern develops when the line AB is equal to the line CD. The lines AB and CD are known as legs, while the line BC is called correction or retracement. Technically the price has extended above – and away from – its 50% midpoint of the move down from the 2021 all-time high of $69,000.

After that, measure the CD line and make sure it reaches 1.272 level. Self-confessed Forex Geek spending my days researching and testing everything forex related. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more.

Bullish ABCD pattern

How to trade the ABCD pattern

This is an example of a bullish ABCD pattern. Ideally, Point C should be Fibonacci retracement between 61.8% to 78.6% of the A-B leg. Point D should be a Fibonacci extension between 127% to 161.8% of the B-C leg. Take profit can be at the 38.2% and 61.8% Fibonacci retracement of the C-D leg. There are a total of three price moves in the ABCD pattern. These are called the leg of AB, the leg of BC, and the leg of CD.

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. Once you have identified the ABCD chart pattern, you need abcd forex pattern to draw it on a trading chart, find the appropriate levels to set entry points, stop loss, and take profit orders. By using the built-in ABCD indicators, we were able to identify this geometric pattern with two Fibonacci rules. The BC line is 61.8% retracement level of the AB line. Moreover, the CD line is the 127% extension level of the BC line.

Stages of pattern formation

Similarly, point B should be the 0.618 retracement of drive 2. If you use the Fibonacci retracement tool on leg AB, the retracement BC should reach the 0.618 level. Next, the line CD should be the 1.272 Fibonacci extension of BC. Yang’s analysis was based on a valuation model, with the $170 price target derived from 24 times the FY25 EPS of $6.97E.

ABCD sell strategy

And gain in-depth knowledge on how to use the indicators to find trends. Though, “experience is the best teacher” most times. The dmi indicator can be used in the 1234 reversal pattern when trading forex. The best time to trade is right after a “strong currency” pairs up with another. Forex traders have adopted the 1234 reversal strategy and are profiting from using it. Any information contained in this site’s articles is based on the authors’ personal opinion.

Our watch lists and alert signals are great for your trading education and learning experience. To be safe, traders generally go long when the price rises ABOVE the resistance of the neckline. Take the reciprocal of the ABC retrace and multiply it by the length of leg CB.

The indicator will look for divergent points between the rising highs and falling… 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. With that in mind, let’s see two examples of the ABCD pattern – bullish and bearish. Take advantage of all the educational resources available with your broker.

The above numbers are based on at least 1,741 perfect trades. This time, we have pointed the proper location of the stop loss order with the thick red line on the image. When you get these characteristics on the graph, you can expect the price to reverse again creating a new bearish run.

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