ABCD pattern
Fibonacci ratios are valuable not only for identifying support and resistance levels but also as the foundation of several important chart patterns, such as the ABCD pattern.
What is the ABCD pattern?
Finding the ABCD pattern?
ABCD pattern extension
ABCD pattern rules
Bullish ABCD Pattern Characteristics ( at point D
Bullish ABCD Pattern Rules
Bearish ABCD Pattern Charateristics ( sell at point D )
Bearish ABCD Pattern Rules
Trading with the ABCD pattern
ABCD pattern factsheet
What is ABCD pattern?
The ABCD pattern is a visual, geometric chart pattern consisting of three consecutive price swings, resembling a diagonal lightning bolt, and often signals a potential trading opportunity.
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This pattern is valuable because it reflects the rhythmic movements typical of market trends. It consists of four key points that create significant highs and lows on the chart:
A new prevailing trend forms at A
The market retraces at B
The initial trend resume at C
You can trade the next correction at D
The ABCD pattern can appear in both bullish (buy) and bearish (sell) forms, across any market—including forex, stocks, and others—in various conditions, such as range-bound phases, uptrends, and downtrends, and on any timeframe.
A market’s movement often repeatedly follows the ABCD pattern over time.
In this example, you might notice that some of the patterns converge. This provides a stronger trading signal than a single ABCD pattern in isolation.
Finding the ABCD pattern
To identify the ABCD pattern, traders examine the legs, or movements, between key points. The AB and CD legs represent moves in the direction of the prevailing trend, while BC is the retracement phase.
Each leg of the ABCD pattern usually spans between three and 13 bars. If you spot an ABCD pattern with legs lasting longer than 13 bars, it may be worth switching to a larger timeframe to check for trend or Fibonacci convergence.
If you believe you’ve identified an ABCD pattern, the next step is to apply Fibonacci ratios to confirm its validity. This also helps pinpoint where the pattern might complete and where to consider opening a position.
In a classic ABCD pattern, the BC retracement should be 61.8% or 78.6% of the AB leg. By applying the Fibonacci retracement tool to the initial A-to-B move, the BC line should ideally end near the 61.8 or 78.6 level.
Other ratios can apply as well. In strongly trending markets, the BC retracement may be only 38.2% or 50% of the AB leg.
The CD leg should then extend to 127.2% or 161.8% of the BC retracement. In a bearish ABCD pattern, this point can signal a sell opportunity, while in a bullish ABCD pattern, it may indicate a buying opportunity.
ABC pattern extension
Identifying ABCD patterns, there are a few additional guidelines to follow. Ideally, the time and length of the AB and CD legs should be approximately equal, unless you're working with an ABCD extension.
In the move from A to B, the market should not go beyond either A or B
In the move from B to C, the market should not go beyond either B or C
During the move from C to D, the market should not retrace beyond points C or D.
In a bullish ABCD, point C must be lower than A and D must be lower than B
In a bearish one, C must be higher than A and D must be higher than B
Bullish ABCD Pattern Characteristics (buy at point D)
Bullish ABCD Pattern Rules
1. Find AB
a. Point A is a significant high
b. Point B is a significant low
c. In the move from A to B there can be no highs above point A, and no lows below B
2. If AB, then find BC
a. Point C must be lower than point A
b. In the move from B up to C there can be no lows below point B, and no highs above point C
c. Point C will ideally be 61.8% or 78.6% of AB
i. In strongly trending markets, BC may only be 38.2% or 50% of AB
3. If BC, then draw CD
a. Point D must be lower than point B (market successfully achieves a new low)
b. In the move from C down to D there can be no highs above point C, and no lows below point D
c. Determine where D may complete (price)
i. CD may equal AB in price
ii. CD may be 127.2% or 161.8% of AB in price
iii. CD may be 127.2% or 161.8% of BC in price
d. Determine when point D may complete (time) for additional confirmation
i. CD may equal AB in time
ii. CD may be 61.8% or 78.6% time of AB
iii. CD may be 127.2% or 161.8% time of AB
4. Look for fib, pattern, trend convergence
5.Watch for price gaps and/or wide-ranging bars/candles in the CD leg, especially as market approaches point D
Traders may interpret these as signs of a potential strongly trending market and expect to see 127.2% or 161.8% price extensions
Bullish ABCD Pattern Characteristics (buy at point D)
1. Find AB
a. Point A is a significant high
b. Point B is a significant low
c. In the move from A to B there can be no highs above point A, and no lows below B
2. If AB, then find BC
a. Point C must be lower than point A
b. In the move from B up to C there can be no lows below point B, and no highs above point C
c. Point C will ideally be 61.8% or 78.6% of AB
i. In strongly trending markets, BC may only be 38.2% or 50% of AB
3. If BC, then draw CD
a. Point D must be lower than point B (market successfully achieves a new low)
b. In the move from C down to D there can be no highs above point C, and no lows below point D
c. Determine where D may complete (price)
i. CD may equal AB in price
ii. CD may be 127.2% or 161.8% of AB in price
iii. CD may be 127.2% or 161.8% of BC in price
d. Determine when point D may complete (time) for additional confirmation
i. CD may equal AB in time
ii. CD may be 61.8% or 78.6% time of AB
iii. CD may be 127.2% or 161.8% time of AB
4. Look for fib, pattern, trend convergence
5.Watch for price gaps and/or wide-ranging bars/candles in the CD leg, especially as market approaches point D
Traders may interpret these as signs of a potential strongly trending market and expect to see 127.2% or 161.8% price extensions
Trading with the ABCD pattern
To find an ABCD pattern on your FOREX.com trading chart, follow these six steps:
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Log into your Flatcurve.com trading account and open a market's chart
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Find AB. Remember that this move must be entirely contained within A and B
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Find BC. This retracement should reach 61.8% or 78.6% of the move from A to B
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Draw CD. Using the AB and BC lines, you should be able to predict where point D will land. CD will usually be equal to AB, and 127.8% or 161.8% of BC in both price and time
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Watch for price gaps and wide-ranging bars in the CD leg. These can indicate that an extension is forming, so CD could be longer than AB
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Trade the potential retracement at D. Open a sell position if you've found a bearish ABCD, or buy if you've found a bullish one