Harmonic ABCD Pattern

Harmonic ABCD Pattern

The ABCD is a basic harmonic pattern. All other patterns derive from it. The pattern consists of 3 price swings. The lines AB and CD are called “legs”, while the line BC is referred to as a correction or a retracement. AB and CD tend to have approximately the same in size.

Bullish ABCD pattern follows a downtrend and means that a reversal to the upside is likely.Bearish ABCD pattern is formed after an uptrend and signals a potential bearish reversal.

For both the bullish and bearish versions of the ABCD chart pattern, the lines AB and CD are known as the legs while BC is called the correction or retracement.

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Using the Fibonacci retracement tool on the AB leg, the BC leg should reach precisely 0.618. The CD line will be the same length as the AB line, and the time taken for A to B should be equal to the time taken for C to D.

Traders can choose to either place their entry orders close to the C point or they can wait until the entire pattern completes before taking a long or short position from the D point. which is defined as Potential Reversal Zone (PRZ).