Then observe the price action behavior in the Potential Reversal Zone (point D). Always book partial profits at each retracement level. Point C is a retracement of the AB move. The corrective BC wave retraces almost 78.6% of AB as well. There is a high level of risk in Margined Transaction products, such as, Foreign Exchange (FX), Bitcoins, Metals and Contracts for Difference (CFDs) trading which may not be suitable for all traders as the losses could exceed the total deposit at times; only use risk capital. Since you’re going against the trend, the market can ambush you anytime. As you can see in the above chart, the CD leg was overstretched. Harmonics. Never enter hastily. Many traders learn to trade the ABCD formation first as it provides a solid base to learn other, more complicated, patterns. Later, Scott Carney in his book, Harmonic Trading, extrapolated the pattern with subtle variations by the application of Fibonacci ratios and found two alternatives. The XABCD points make four distinct legs that come together to form chart patterns. When all three converge at one point, it forms an electric move. So far, all the fuss was about point D. The point C has a say in the price action too. When the price retraces from point D: If it takes down point C, then it results in a reversal. So be prudent and follow the risk management principles. Some traders refer to the ABCD pattern as AB=CD, so for the purposes of this discussion, we use the terms interchangeably. Point C is the red line in the ABCD chart pattern. If the asset stretches up to 161.8% or twice the length of AB, it most likely is an overstretched, exhaustion rally. In the above chart, the BC wave made a solid retracement of 78.6%. The ups and downs of the long-term wave usually sync with the pattern. The C point must retrace to either a 0.618 or 0.786 and the BC projection is either 1.27 or 1.618. The ABCD Pattern The ABCD pattern is formed by 3 market swings or legs, the AB leg, the BC leg and the CD leg as shown on the following graphic. In the above chart, the BC wave retraced only to 50% of AB. As a result, when it hit the resistance at 161.8%, it retraced just up to 23.6% of AD wave. The CD wave extends to either 127.2% or 161.8% of the BC wave. As the name suggests, this pattern takes into account only the extension of the CD wave. But what it hasn’t seen is ‘you’. Hence, don’t confuse it. Then the broken point acted as support, strengthing the case for buy. So, the 127.2% extension doesn’t offer any cues whereas 161.8% level does. Hence, the pattern also goes by the name Lighting bolt (AB=CD) pattern. And so, the ability to distinguish the profit booking and reversal can mean life and death, when using this pattern. All Readers are advised to conduct their own independent research into individual stocks before making a purchase decision. Harmonic Patterns Indicator for ThinkorSwim (ZigZag, Bat, Butterfly, ABCD) ABCD chart pattern is yet another gift of Fibonacci ratios to the field of technical analysis. The important harmonic patterns are the 5 point harmonic patterns (Gartley, Butterfly, Crab, Bat, Shark, Cypher). After the pitstop, the asset resumed its trend. Let go of the delusion…, Biased decisions often enter into our ‘regret list’. Since the introduction of harmonic patterns in Harold M. Gartley’s 1935 book, Profits in the Stock Market, a lot has changed. The AB=CD or ‘lightning bolt pattern‘ Harmonic Pattern. So it’s inevitable that the original Gartley 222 pattern would undergo some developments as well – after all, the only thing that remains constant is change. Traders can use this pattern to automatically plot the buy and sell patterns. Enter your email address to subscribe to this blog and receive notifications of new posts by email. However, the pattern is still valid if the CD leg extends and is larger than the AB leg. ABCD or AB=CD is the most basic of all harmonic patterns. And it extended up to 161.8%. ABCD chart pattern is yet another gift of Fibonacci ratios to the field of technical analysis. It gives signals and shows the levels of entry into the market, as well as the levels for placing stop orders, which allows the trader to make timely decisions on entering the market, as well as effectively manage positions and orders. I do not accept any liability/loss/profit occurring from the use of any content from this site. Hope your focusing on trading failed patterns since 60% of all harmonic patterns fail Code: #McDon030 4/23/2020 #Larry Pes added tolerance for choppy markets - default is .04 and no more than .07 for choppy markets. After a brief retracement from point B to point C, the pattern will complete the C to D leg, which is the same length as AB. 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