The more tools a trader knows and confidently use the more successful he will be at Forex trading. However, one of the hardest things to establish as a trader is determining the entry point of his trade. To beginners sometime placing this point correctly is a matter of luck or as if its up to the market decide it.
Trading patterns make finding such points much easier and clearer. Among the tools a trader can apply easily is the ABCD patterns. The ABCD trading patterns are formed according to the laws of Fibonacci and they rely heavily on the ratio between later numbers in the sequence, especially the 61.8%, and they have three consecutive and distinctive price swings.
These patterns are used a lot in FXLORDS’ Managed Forex Accounts, Forex Trading Signals, and it is among subjects discussed in the Training Course, and they are considered very important simply because they are primarily recognized as buy and sell signals. According to the direction of the ABCD trading patterns, they can either be bullish or bearish. Each of those two has three different patterns, they are:
- AB = CD; Where AB and CD have the same length.
- The Classic ABCD; where CD equals 127.2% or 161.8% of BC length.
- The ABCD Extension; where CD equals 127.2% or 161.8% of AB length
Here is a visual illustration for these patterns
The turning points of the price are labelled A, B, C and D, each represent a high or a low. These points are connected with consecutive price swings which form the legs of the patterns; AB, BC and CD.
To confirm that you’re looking at bullish ABCD patterns, you need to make sure that point A is a significant high and D is a significant low. Between the two swing points there should be no breakouts and point B shouldn’t be lower than point D. Similarly, To confirm that you’re looking at bearish ABCD patterns, you need to make sure that point A is a significant low and point D is a significant high. Between the two swing points should be no breakouts and point B should be lower than point D.
It should be noted here that sometimes the formation of the ABCD trading patterns is not as accurate as it sounds here. If you’re going to trade based on the ABCD patterns, you should confirm your decision by checking other technical indicators and chart patterns. The ABCD patterns perfectly works with the Renko charts and the Heikin Ashi indicator. If they converge, then there is a greater chance of making a potentially good trade into a great one.