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# How to Trade the Harmonic AB=CD Pattern

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### Introduction

Harmonic Trading is a method based on the specific structures recognition to determine highly probable reversal points. These structures possess specific Fibonacci levels that validate the harmonic pattern. In this article, we will show how to recognise and detect potential trades opportunities with the AB=CD pattern. We don’t need to cover all harmonic patterns because, according to Carney (see suggested readings below), the AB=CD structure is the initial point to all harmonic patterns.

### The AB=CD Pattern

The AB=CD pattern was described by H.M. Gartley in his book Profits in the Stock Markets, published in 1935. Figure 1 represents the AB=CD pattern. In Fig 1, (i) is the ideal AB=CD bullish and (ii) is the normal AB=CD. The A-B-C section of the AB=CD structure also is called  “1-2-3 Pattern” or “ABC Wave.” The objective is to trade the AB section continuation.

###### Source: Personal Collection.

To increase the probability in the BC projection and the PRZ (Potential Reversal Zone) forecast, Carney (2010) exposes the reciprocal ratio levels; these relations help to define the best PRZ complement for the AB=CD structure (see table 1).

###### Source: Carney, S. (2010)

The Potential Reversal Zone (PRZ) is a convergence area, where Fibonacci levels are concentrated to such extent that the confidence of this region rises. As we’ve exposed in our article Understanding the Fibonacci sequence, (https://forex.academy/understanding-the-fibonacci-sequence) no law forces a price to pull back to a Fibonacci level, and then turn again to its previous trend. It is essential to pay attention to price action and remember that the PRZ must be confirmed before pulling the trigger.

### Ways to trade the AB=CD Pattern.

1. The first way is looking at the AB=CD completion for the reversal movement.
• Step 1: Identify the start of the movement and trace the AB retracement, see figure 2:

###### Source: Personal Collection.
• Step 2: Trace the BC projection and make the Potential Reversal Zone (PRZ) identification.

###### Source: Personal Collection.
• Step 3: Define an Invalidation Level and Profit Target zone identification. Profit target levels are PT 1 at 38.2% % and PT 2 at 61.8% of the CD segment.
• Stop Loss could be placed below D level.

###### Source: Personal Collection.
• Step 4: Set all together in your Trading Plan. (For further information see our article Making a Trading Plan Using Fibonacci Tools).
• The second way is to trade the CD segment. For this scenario, we will look for the completion of the CD movement:
• Step 1: Identify the AB segment and measure BC with Fibonacci retracement (see figure 5).
• Step 2: Make the BC projection to CD segment completion (see figure 5).
• Step 3: Identify invalidation level, PRZ for entry and take profit levels. Entry could take place at a Fibonacci level of AB retracement; Stop-Loss could be above A level and Profit Target at a BC complement level (see table 1). In figure 5 example, we use F(127.2) as a conservative TP for the trade proposed.
• Step 4: Make the Trading Plan.