Forex 103Lesson 1

ABCD Pattern Trading

The ABCD pattern (AB=CD) is one of the classic chart

patterns which is repeated over and over again. The

ABCD pattern shows perfect harmony between price and

time and is also referred to as ‘measured moves’. It was

developed by Scott Carney and Larry Pesavento after

being originally discovered by H.M Gartley.

Within the ABCD patterns, there are 3 types as mentioned below.

Price and Time: Under this type of ABCD pattern the amount of

distance and the time it takes for price to travel from A to B is equal to the time and distance from C to D

Classic ABCD: In this pattern, the BC is a retracement of 61.8% –

78.6% of AB, with CD being the extension leg of 127.2% to 161.8%

(equal in price distance)

ABCD extension: CD leg is an extension of AB between 127.2% –

161.8%

The chart below shows the three different ABCD bullish patterns.

Trading ABCD Bullish pattern

Swing points A and B form the highest high and the lowest low of the swing leg

When AB is identified, the next step is to plot BC

C must be lower than A and must be the intermediate high after the low point at B

C usually retraces to 61.8% or 78.6% of AB

In strong markets, C can trace only up to 38.2% or up to 50% of AB

Point D must be a new low below point B

CD must be 127.2% or 161.8% of AB or of CD

Buy at point D

Some variations to the rule include:

CD can be an extension of AB anywhere from 1.272% up to 2.00% and even

greater

CD leg usually slopes at an angle that is wider than the AB leg

When there is a gap formed after point C, it indicates that the CD leg will

be much larger than the AB leg.

Appearance of wide range bars near point C is also an indication that CD will be an extended leg

In most cases, AB and CD are equal in time and price

If the CD leg is covered within just a few price bars as compared to the AB leg, then it is an indication that the CD leg will be an extension of AB

The opposite rules apply for bearish ABCD patterns. The chart below illustrates a Buy trade

example where we notice that BC retraced close to 61.8% (at 59.4%) after which CD travelled

close to 139.6% of the AB leg.

After the D point has been identified, a buy order would be place at or above the high of the

candle at point D.

Traders should note that the ABCD count should not be confused with the ABC corrective waves from the Elliott Wave count.

The ABCD is a recurring pattern that is repeated over and over in the price charts, with each of the patterns qualify any of the

rules mentioned above forming any of the 3 patterns.

The ideal way to get started with the ABCD pattern is to look for

highs and lows in the price. A good way would be to make use of

the zig-zag indicator found with the MT4 trading platform. This

indicator can automatically plot the highs and lows and thus

identify the traders to any potential ABCD patterns.

Additionally, using an oscillator helps in identifying the turning

points once pivot swing point D is formed. The ABCD also forms

the basis of many other chart patterns such as the three-drives

patterns and also within the price channels.

The chart above shows the bullish ABCD pattern being easily identified with the zig-zag indicator. After point D is formed, price makes a small rally

right after this pivot swing low if formed.

As we can see from the above, the ABCD pattern is a simple harmonic

pattern that appears on the price charts frequently. If can give clues to

the trader about potential future moves.