78 Trading ABC Patterns by Suri Duddella Markets demonstrate repetitive patterns where prices oscillate between one set of price ratios to another making price projections possible. Market trends can be defined by geometric relationships as they exhibit harmonic relationships between the price and time swings. Many investors/traders use “cycles” and “harmonic” relationships to project future swing price/times. These harmonic price movements produce symmetric rallies and declines to give traders an advantage to determine the key turning points. “Symmetry” is visible in all markets and in all timeframes. The ABC Chart pattern and its related AB=CD Chart Pattern are prime examples of "Symmetry" in the markets. These "Harmonic" patterns help traders to identify buying and selling opportunities in all markets and in all time-frames. The ABC and AB=CD patterns are first described by H.M. Gartley in his book "Profits in the Stock Market." (1935). The main advantages of trading harmonic patterns are that they allow traders to determine risk vs. reward ratios beforehand as they forecast key market turning points and profit targets for traders. In this article, I will describe how to trade 'ABC' chart patterns. The ABC pattern (can be a continuous or reversal pattern) and it is shaped like a lightning bolt. Identification The key point in identifying an ABC and AB=CD patterns is to correctly detect the A, B, and C key inflection (Pivot) points in a chart while they are forming. These inflection points are determined from key swing highs and lows of various levels, and for its correction waves to determine distinct "swings." The potential C point is usually forecasted by the fib. retracements (0.38 to 0.618) of AB Swing. Once A, B, and C points (and AB, BC legs) are identified, a projection algorithm is applied to compute the Potential Completion Zone (PCZ). This PCZ area is where ABC pattern is expected to complete and may signal continuation of its trend in the first trend direction (AB). Following the completion of BC leg, the projections of AB and BC legs (using fib. ratios) are plotted (from C) to generate targets. The ABC pattern is traded in the trend direction of AB from C to D. The following charts show both ABC Bullish and ABC Bearish formations with its trade information in TradeStation software. Conditions: The swing legs (AB and BC) in ABC pattern are generally in symmetrical proportions both in price and time with consistent slopes. The tradable CD leg has a harmonic relation with symmetry for AB and BC swings. The ABC bullish structures are formed after a prolong prior down trend or consolidation trends,
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