FOREX THEORY
The ABCD
Let’s start this lesson with the simplest harmonic pattern,
and what could be more basic than your good ole ABC’s? We’ll just pop in another
letter right there (because we’re cool like that) and we’ve got the ABCD chart
pattern!
To spot this chart pattern, all you need are ultra-sharp
hawk eyes and the handy-dandy Fibonacci tool.
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. If you use the Fibonacci retracement tool on leg AB,
the retracement BC should reach until the 0.618 level. Then, the line CD should
be the 1.272 Fibonacci extension of BC.
Simple, right? All you have to do is wait for the entire
pattern to complete (reach point D) before taking any short or long positions.
Oh, but if you want to be extra strict about it, here are a
couple more rules for a valid ABCD pattern:
-The length of line AB should be equal to the length of line
CD.
-The time it takes for the price to go from A to B should be
equal to the time it takes for the price to
move from C to D.
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