Harmonic Patterns - Harmonic Patterns

AB=CD Pattern

The AB=CD pattern is a classic and foundational element of harmonic trading, used by technical analysts to forecast market reversals and predict future price movement. Recognized for its simplicity and precision, the AB=CD pattern is based on Fibonacci ratios and symmetrical price legs, making it a favorite among both beginner and advanced traders.

In this comprehensive guide, we’ll explore what the AB=CD pattern is, how to identify it, and how to trade it effectively with proper entry, stop loss, and take profit strategies.

What is the AB=CD Pattern?

The AB=CD pattern is a four-point harmonic pattern that reflects a market cycle of impulse and correction. It consists of two equivalent price legs: AB and CD, where the price movement from point A to B mirrors that of C to D.

The pattern aims to identify exhaustion points where a price reversal is likely to occur, allowing traders to enter at optimal price zones.

Key Features

  • Consists of four points: A, B, C, and D
  • Legs AB and CD are equal in both time and price (or very close)
  • Based on Fibonacci ratios, often involving 0.618, 0.786, or 1.272 extensions
  • Signals trend exhaustion and reversal

Structure of the AB=CD Pattern

Bullish AB=CD Pattern

  • AB: Price declines from point A to point B
  • BC: Price retraces upward (correction) from B to C
  • CD: Price declines again from C to D, ideally equal in length to AB
  • The pattern completes at point D, where a bullish reversal is expected

Bearish AB=CD Pattern

  • AB: Price rises from A to B
  • BC: Price pulls back from B to C
  • CD: Price rises again from C to D, matching the AB leg
  • The pattern completes at point D, where a bearish reversal is expected

Fibonacci Ratios in AB=CD Pattern

  • BC Retracement: Typically 0.618 or 0.786 of AB
  • CD Extension: Often 1.272 or 1.618 of BC
  • AB = CD: The core symmetry where the length of AB equals CD in both time and price

How to Identify the AB=CD Pattern

To correctly spot the AB=CD pattern on your chart:

  1. Identify a strong impulse leg from point A to B.
  2. Look for a retracement (BC) of about 0.618 or 0.786 of the AB leg.
  3. From point C, project the CD leg to match the length and duration of the AB leg.
  4. Confirm the pattern at point D using confluence zones such as support/resistance, RSI divergence, or candlestick patterns.

How to Trade the AB=CD Pattern

Entry Point

  • Enter a trade at point D, where the AB=CD projection completes.
  • Look for confirmation such as pin bars, engulfing candles, or RSI/MACD divergence.

Stop Loss

  • Place the stop loss slightly beyond point D to avoid being caught in a false breakout.
  • In a bullish pattern, stop loss goes below D; in bearish, above D.

Take Profit

  • Take profit at point C or use Fibonacci extension tools to set the next resistance/support as target.
  • Some traders also use a 1:2 or 1:3 risk-reward ratio for target projection.

Example: Bullish AB=CD Trade Setup

  1. AB Leg: Price drops from $100 to $90
  2. BC Retracement: Price rises to $95 (0.618 retracement of AB)
  3. CD Leg: Price falls again to $85, mirroring the AB leg
  4. Entry: Buy at $85 (point D)
  5. Stop Loss: Set at $83 (below D)
  6. Target: $95 (point C)

Advantages of AB=CD Pattern

âś… Simple and Effective: One of the easiest harmonic patterns to learn and apply
âś… High Accuracy: Provides precise entry and exit points
âś… Works Across Timeframes: Suitable for day trading, swing trading, and long-term investing
✅ Clear Structure: No complex measurements—just symmetry and Fibonacci

Pro Tips for Using the AB=CD Pattern

  • 🔍 Always combine the pattern with volume analysis and momentum indicators for better confirmation.
  • 📉 Use trendlines or channel analysis to validate the price movement around points C and D.
  • ⏳ Be patient and wait for full pattern completion—don't enter prematurely.

Final Thoughts

The AB=CD pattern is a timeless and powerful tool in harmonic trading that helps traders identify market reversal points with a high level of accuracy. By understanding its structure, applying Fibonacci ratios, and combining it with technical confirmation, you can enhance your trading strategy and boost your confidence in entering high-probability setups.

Start practicing the AB=CD pattern on historical charts and refine your skill to spot symmetry in price movement. With time and experience, this pattern can become one of your most reliable trading allies.

Disclaimer: This article is for educational purposes only and should not be considered financial advice. Read our full disclaimer.

Disclaimer: This article is for educational purposes only and should not be considered financial advice. Read our full disclaimer.