How to Identify The A-B-C-D pattern

Pattern A-B-C-D is the simplest and the easiest to spot on the chart among the other harmonic patterns. It is commonly referred to as AB=CD by most traders due to its formation.

This simply means that move from A to B is equal to move from B to C . It is actually better if time taken by the pattern to form  A to B is the same time taken to form C to D.  It forms both in uptrend and downtrend which brings us to bullish harmonic and bearish harmonic pattern of A-B-C-D.

So Lines AB and CD are called legs and are equal and BC is the correction/ retracement. Let’s see how that looks like on the illustration below;

 

Using the Fibonacci retracement tool, the correction BC should form as far as 61.8% of AB and CD 127.2% extension from BC. The time taken for price to move from A to B should be equal to time taken by price to form from C to D. Buy or sell signal is after the completion of the pattern at D.

Let’s take a look on some examples and see how A-B-C-D harmonic pattern looks like.

Example 1: The Bullish harmonic A-B-C-D pattern 

Below is CAD/CHF, 4-Hour price chart with the pattern. The green lines represent Fibonacci retracement levels and the broken red lines represent extension levels.

From our chart above, the Buy signal zone is at D as shown above with the Stop loss  set just below the entry trigger candlesticks. The first profit target is at 78.6% extension level and second profit target is at 61.8% Fibonacci extension level as indicated above.

Example 2: The Bearish harmonic A-B-C-D pattern 

Below is AUDUSD, Daily price chart with the pattern. The green lines represent Fibonacci retracement levels and the broken red lines represent extension levels.

From our chart above, the Sell signal zone is at D as shown above with the Stop loss  set just above the entry trigger candlesticks. The first profit target is at 78.6% extension level and second profit target is at 61.8% Fibonacci extension level as indicated above.

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