ABCD Pattern
Definition
A four-point harmonic chart pattern where price makes an initial impulse leg (AB), a corrective pullback (BC), and then a continuation leg (CD) that mirrors AB in length and angle. Traders buy or sell at point D expecting the pattern to complete and reverse.
Example
“"Textbook ABCD — AB was a $2 move, BC pulled back 50%, and CD hit the same $2 extension. I went long at D with a tight stop and rode the reversal."”
Detailed Explanation
The ABCD pattern is one of the foundational setups in technical trading, popularized by Scott Carney and H.M. Gartley. It describes a structured, rhythmic price movement that appears across all markets and time frames. The core idea is symmetry: if you understand how far and how steeply a stock moved in the first leg (AB), you can project where the second leg (CD) will likely end — and that projected end point (D) is your entry zone.
The mechanics: Price makes an initial impulsive move from A to B. It then retraces from B to C — typically 38.2% to 61.8% of the AB move. From C, it resumes in the original direction, making the CD leg equal to AB in length (measured in price). The D point is the trade entry: buy if the overall pattern is bullish (ascending ABCD), sell short if bearish (descending ABCD).
The quality of the pattern improves with confluence. A D-point that lands at a prior support/resistance level, a round number, or a Fibonacci extension of the AB leg is more compelling than one that appears in empty space. Volume patterns also matter — ideally, BC is low-volume consolidation and CD completes on increasing volume into D before reversing.
Risk management is straightforward: stop-loss below the D point (for bullish patterns) or above it (for bearish), and profit targets at C and then back at the B level. The ABCD is most reliable in trending markets where measured moves are the norm, and least reliable in choppy, low-conviction environments where legs are erratic and ratios are inconsistent.