You can see an example of a bullish reversal pattern in the section below. The patterns indicate when the price of a security is about to change and begin trending in the opposite direction. For example, if a stock has been trending upward, the ABCD pattern can help you predict when this trend will reverse and begin moving downward. The corrective move BC would generally retrace from B to the Fibonacci 61.8% retracement level at C. Next, the third leg CD would generally extend to the Fibonacci 127.2% extension level from BC to D.

what is an abcd pattern

You have to study hard for a chance to make it as a day trader. If the stock makes new highs but there’s not enough volume, sellers will push it back down. In order for the breakout to be successful, enough traders have to buy through all the bag holders from the morning.

Convergence of several patterns—within the same timeframe, or across multiple timeframes–provide a stronger trade signal. Highest probability trade entry is at completion of the pattern . Providing you with the most comprehensive charting tools and a reliable platform with fast execution. For a bullish ABCD, the investor will look to buy at point D. For a bearish ABCD, the investor will look to sell at point D.

How To Avoid Heavy Losses With The Abcd Pattern

In bullish ABCD, when the price reaches point B, bearish momentum initiates so you can place a sell order here. But it is wise to place a buy order near point C as it is easier. The initial or AB is a bearish movement due to declining pressure. Then the price returns to the C point and creates the BC bullish, and the price starts to fall from point C. However, it is somehow not wise to expect to obtain the best results through any candlestick pattern without complete understanding.

what is an abcd pattern

Setting Take-Profit Targets- This is an essential part of trading, it’s where you set a profit target on a chart where you will exit and turn a profit. In most cases, it’s ideal to set a profit target close to point D. Overlays– These indicators use scales to plot prices on a stock chart. You can use it to see if the market may be overbought or oversold. A good example would be Bollinger Bands, it’s an overlay that shows the high and low limits of a price.


Once you have noticed this, it’s time to execute a long trade. You should place your stop loss order below the lowest point of the CD swing as shown with the red thick line on the chart. Let’s look at one more example of Starbucks Corporation on 16th Dec ’21. The trading process is the abcd pattern stocks same as discussed above but you may ask what if the price didn’t reverse after selling all shares? To avoid this kind of situation you can use the trailing stop loss strategy after point . Now at point C, some new traders will enter and bring the price to the new highs of the day .

It is simple, easy to understand and useful for day trading. If the stock holds support at C, I enter the trade as close to the price of C as possible. I hope that the stock will move up or even surpass point D.

what is an abcd pattern

Ross Cameron’s experience with trading is not typical, nor is the experience of students featured in testimonials. Becoming an experienced trader takes hard work, Pair trading on forex dedication and a significant amount of time. Once you have identified a very clear buy signal on your chart, the only thing left to do is to watch for a breakout.

The ABCD pattern is important because it helps provide a consistent insight on potential reversal zones, so traders can determine if they should buy or sell. It applies to all types of trades, whether it’s stocks Fiduciary or cryptocurrency. It can also be used to determine if the risks outweigh the reward. Since ABCD patterns work on different timeframes, they are widely used and form in both market uptrend and downtrend.

The Psychology Behind The Abcd Pattern

There are 3 types of ABCD patterns in which specific criteria/characteristics must be met. Helps to determine the risk vs. reward prior to placing a trade. This may be done via buying or selling pullbacks in a prevailing bullish or bearish trend. For all intents and purposes, the ABCD pattern may be used to trade trend and reversal strategies.

  • Kurzweil users are automatically granted online storage space – documents uploaded to this space can then be read with Firefly.
  • The ABCD Pattern can be found on a lot of heavily traded stocks, regularly.
  • It’s a good indicator of when to enter or exit a position before the stock ticks up or down again.
  • CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
  • In an ABCD extension the retracement at D extends further than anticipated.

Price may trade the harmonic reversal zone for a prolonged period of time. Wait for the price to stabilize in the harmonic reversal zone. Many times ABCD patterns are not perfectly symmetrical or even close to. But usually the CD leg is longer – these are called ABCD extensions.


Once you have located an entry position, you should begin to consider when to exit the trade. Technical analysts interpret these patterns in Credit default swap an attempt to predict future price movements. Due to a migration of services, access to your personal client area is temporarily disabled.

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And once buyers overpower sellers, an intraday low is established as the price comes down. View our full suite of financial calendars and market data tables, all for free. The ABCD pattern is a highly recognizable value pattern that happens in stocks across the globe every day.

And if he gets in far enough under the breakout level, he can get out for safe profits even if it craps. Each of the four points represent a significant high or low in terms of price on the chart. Therefore, the three previously mentioned legs represent different trends or price movements which move in opposite directions. Keep a portion of your position open for the possibility of a further price move and utilize simple price action rules for a final exit signal. Sell when after CD reaches the 127.2% Fibonacci extension of BC and the price action bounces from this level. Since the figure above represents a bullish ABCD pattern, we would look to buy the USD/JPY Forex pair after the price bounces from the 127.2% extension of BC.

No repaint if the pattern was drawn after the point D closed. AB percent, this parameter is used to check the price difference between A and B in percentage. For example, if you set it to 5, then point B must fall/raise at least 5% from point A. Both indicators have the following parameters and features. You will be able to control the shape of the pattern in order to detect your desired ones only.

The remainder may be booked using a 0.382 trailing stop or trendline violations. Aroon Indicator– Used to identify when a trend is about to begin, and if the price is hitting new highs and lows. If you’re trying to identify the ABCD pattern, it helps to illustrate the pattern’s construction on the chart and see if it aligns with an ABCD pattern. There are several ways to do this, including using chart tools. Arlington-based software company Rosetta Stone Inc. has been acquired by IXL Learning, the California-based educational learning company announced on Wednesday.

Author: Jessica Dickler