The ABCD pattern is one of the simplest harmonic patterns. It consists of three consecutive price swings that are proportionate to each other by using Fibonacci ratios. In all cases, the lines AB and CD are known as the legs, while BC is called the correction or retracement.
Some rules that apply to all ABCD patterns are:
- The length of line AB should be equal to the length of line CD.
- The time it takes for the price to move from A to B should be equal to the time it takes for the price to move from C to D.
Bearish ABCD Pattern
In order, the bearish ABCD pattern consists of:
- An impulse up from A to B.
- A 61.8% (0.168) retrace (golden retrace) from B to C. Though it is not out of the realm of possibility that it could retrace 78.6% (0.786).
- From there price continues back to the upside 1.272 Fibonacci extension. Though it is not out of the realm of possibility that price could run up to the 1.618 Fibonacci extension.
The A to B leg should be proportionate and symmetrical to the C to D leg.
Note: These percentages are for a perfect bearish ABCD pattern, however in reality the retracement percentages could be close to these and still be a very valid pattern.
Price Targets
Once a valid bearish ABCD pattern is found, draw a Fibonacci retracement from the swing low (A) to the swing high (D) to find price targets.
- The first target is the 0.382 Fibonacci retracement.
- The second target is the 0.5 Fibonacci retracement.
- The third target is the 0.682 Fibonacci retracement.
Bullish ABCD Pattern
In order, the bearish ABCD pattern consists of:
- An impulse down from A to B.
- A 61.8% (0.168) retrace (golden retrace) from B to C. Though it is not out of the realm of possibility that it could retrace 78.6% (0.786).
- From there price continues back to the downside 1.272 Fibonacci extension. Though it is not out of the realm of possibility that price could run up to the 1.618 Fibonacci extension.
The A to B leg should be proportionate and symmetrical to the C to D leg.
Note: These percentages are for a perfect bearish ABCD pattern, however in reality the retracement percentages could be close to these and still be a very valid pattern.
Price Targets
Once a valid bullish ABCD pattern is found, draw a Fibonacci retracement from the swing high (A) to the swing low (D) to find price targets.
- The first target is the 0.382 Fibonacci retracement.
- The second target is the 0.5 Fibonacci retracement.
- The third target is the 0.682 Fibonacci retracement.
