Let’s start this lesson with the simplest harmonic pattern. So what could be more basic than the good old ABCs?
We’ll just pop in another letter at the end (because we’re cool like that), and we’ve got the ABCD chart pattern! That was easy!
To spot this chart pattern, all you need are ultra-sharp hawk eyes and the handy-dandy Fibonacci chart 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 the 0.618 level. Next, 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:
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