AB=CD
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The AB=CD pattern is easy to identify on charts and consists of 2 equivalent price legs. It has specific Fibonacci measurements of each point within its structure, eliminating room for flexible interpretation. The C point must retrace to either a 0.618 or 0.786 and the BC projection is either 1.27 or 1.618. When the BC projection and the AB=CD completion converge closely and define a small area, the chance of a reversal increases.
The first target would be the 382 retracement of AD and the second target the 618 retracement of AD. A common stop level is behind a structure level beyond the D point. Conservative traders may look for additional confirmation before entering a trade, for instance an aligning RSI value or a specific candlestick pointing at a reversal. TradingView has a smart ABCD Pattern drawing tool that allows users to visually identify this pattern on a chart. There are several variations, based on CD being an extension of AB such as the 1.27 AB=CD or the 1.618 AB=CD pattern.
The first target would be the 382 retracement of AD and the second target the 618 retracement of AD. A common stop level is behind a structure level beyond the D point. Conservative traders may look for additional confirmation before entering a trade, for instance an aligning RSI value or a specific candlestick pointing at a reversal. TradingView has a smart ABCD Pattern drawing tool that allows users to visually identify this pattern on a chart. There are several variations, based on CD being an extension of AB such as the 1.27 AB=CD or the 1.618 AB=CD pattern.
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The Alternate AB=CD Pattern
Since the AB=CD pattern is the basic framework of all harmonic patterns, it is an essential consideration in defining any Potential Reversal Zone (PRZ). Although the equivalent AB=CD pattern has been utilized by technicians for quite some time, the idea of an alternate calculation to define other Harmonic patterns was originally outlined in The Harmonic Trader. Alternate patterns provide an effective means of complimenting other significant Fibonacci calculations, especially when the equivalent AB=CD is not relevant for a particular set-up. The alternate AB=CD pattern differentiates patterns, as well. For example, the AB=CD in a Gartley is usually equivalent, while the Bat utilizes an alternate 1.27AB=CD pattern. These two similar patterns require completely different AB=CD conditions to validate their respective structures. This degree of differentiation increases the validity of pattern identification techniques and reduces the overall risk by defining the most precise Potential Reversal Zones (PRZ).
Since the AB=CD pattern is the basic framework of all harmonic patterns, it is an essential consideration in defining any Potential Reversal Zone (PRZ). Although the equivalent AB=CD pattern has been utilized by technicians for quite some time, the idea of an alternate calculation to define other Harmonic patterns was originally outlined in The Harmonic Trader. Alternate patterns provide an effective means of complimenting other significant Fibonacci calculations, especially when the equivalent AB=CD is not relevant for a particular set-up. The alternate AB=CD pattern differentiates patterns, as well. For example, the AB=CD in a Gartley is usually equivalent, while the Bat utilizes an alternate 1.27AB=CD pattern. These two similar patterns require completely different AB=CD conditions to validate their respective structures. This degree of differentiation increases the validity of pattern identification techniques and reduces the overall risk by defining the most precise Potential Reversal Zones (PRZ).
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