![]() ![]() Multiply this by the BC leg and add it to the low at C. The reciprocal of the ABC retrace is 1/0.618 or 1.618. How do I know? Let's go through the calculation. If the pattern works as it's supposed to, the stock will peak at 11.73. What is the predicted price of D, which is to say, how far will price rise? Does this qualify as a potential bearish AB=CD pattern? Gives 12.63, closer than the prior method's 13.02.Ĭonsider a trade in AES corporation, the chart of which is shown on the right. In this example, instead of using 50%, use 61.8%. You can increase the accuracy of the measure rule by using the next higher Fibonacci number in the formula to find point D. Multiplying this by 2 gives 2.04 and adding it to the low at C gives 13.02. In this case, the BC leg is 12-10.98 or 1.02. Once you know that the stock retraced 50% of the AB move, take the reciprocal of this (1/0.5 or 2) and multiply the BC leg by this value and add it to the low at C. A larger window was unnecessary because too many patterns already met the guidelines. To use this 1% window to qualify the turns. ![]() Missing this by one percentage point (for a retrace of 49% to 51%) would give a range of 10.98 to 11.02, so C would qualify as "close" to the 50% retrace value. The ABC row of the Identification Guidelines table)? A 50% retrace of the 10 to 12 move would be 11. ![]() Is point C close enough to a 50% retrace (that is, the closest Fibonacci number listed in The measure rule target provided by the calculation, ifįor example, say the low at point A is 10, the high at B is 12, and the low at C is 10.98. Take the reciprocal of the ABC retrace and multiply it by the length of the BC leg. That excluded some of the ratios listed in the table, BCD row, because they are not reciprocals of the ABC retraceĪ more complicated approach is to use Fibonacci ratios to determine D. Testing used a reciprocal of the Fibonacci retrace to predict D. See Trading Tips for an explanation of this. What does "close" mean? In my tests, I used 1% because this pattern occurs so frequently, a larger percentage is not necessary. The DC/BC extension measures one of 113%, 127%, 141%, 161.8%, 200%, 224%, 261.8%, or 314%.įind four turns where the ratio of one leg to another is close to the Fibonacci numbers listed in the prior table. Retrace BC as a percentage of BA should be one of the following Fibonacci ratios:ģ8.2%, 50%, 61.8%, 70.7%, 78.6% or 88.6%.Īfter peaking at B, price drops to C followed by an extension to D. Price climbs from valley A to peak B then retraces to valley C. This is not a guideline, but an observation. There are several variations, based on CD being an extension of AB such as the 1.27 AB=CD or the 1.618 AB=CD pattern.The peaks and valleys in the pattern need not be consecutive. TradingView has a smart ABCD Pattern drawing tool that allows users to visually identify this pattern on a chart. Conservative traders may look for additional confirmation before entering a trade, for instance an aligning RSI value or a specific candlestick pointing at a reversal. A common stop level is behind a structure level beyond the D point. The first target would be the 382 retracement of AD and the second target the 618 retracement of AD. ![]() When the BC projection and the AB=CD completion converge closely and define a small area, the chance of a reversal increases. The C point must retrace to either a 0.618 or 0.786 and the BC projection is either 1.27 or 1.618. It has specific Fibonacci measurements of each point within its structure, eliminating room for flexible interpretation. The AB=CD pattern is easy to identify on charts and consists of 2 equivalent price legs. ![]()
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