What is an ABCD chart pattern and how to trade it

Do you want to know more about chart patterns and how they work? Watch our latest video to find out what is an ABCD chart pattern and how to trade it.

What is an ABCD chart pattern – a simple guide

Trading can be as simple as A, B, C and D. In this video, I’m going to show you how you can use these very simple swing patterns within the markets, in order to find excellent places to enter and to define and limit your risk, but also maximize your potential gains. Now, on the screen in front of you, I’m going to show you an example of a trade I’m actually in at the moment and the way ABCD trading works, it’s based upon Elliot Wave Theory, and you identify an A and B leg of a move. So, the A to B leg, and then you identify a B to C leg, and then you identify that price should travel from C to D. So, you can see in this example here, I’ve identified the A to B leg of a move, then we have the B to C leg, and now I’m making a move up towards the D leg and my target’s there, which you can see is an extension of the A to B leg, and the C to D leg should be in equal length. So that’s my ultimate target.

Now, I’m not going to explain how I’m going to play this as it goes out, but that’s my ultimate target. All I want to explain to you is simply how you go about at identifying these ABCD legs. If you look in the market, you’ll see these everywhere. So, first of all, when you see an A to B leg like you do here, you get a Fib retracement level. You just go left to right, so you’ve got A-B leg, now you’re waiting for the B to C leg to finish and the way you would have worked this out is you would have seen the price went down here. And how do you know where the C to D leg is going to be? Is it the 38.2, is it the 50, or the 61.8 level? They are the three main levels that you want to be entering a trade on.

So, in this instance, what you can see is, that price went down to this area here and then, when the stochastics started turning to the upside, then we started to move in the direction that we wanted. Now, you may have got in here, at this level here, when price just broke above here, you see stochastics turned from the upside, you might have broken here. Now, that wouldn’t necessarily have been wrong, because you hit the 38.2 Fib, but if you think about it, you would have had to have quite a large stop, wouldn’t you? So, ideally, you would put your stop underneath the A leg, but that’s a huge stop, isn’t it? Look, that’s 1.08 to 1.04, so that’s 400-500 point stop. See, what I would be inclined to do, is once price broke above this EMA and rejected this level, just put a stop underneath there, because you could always re-enter and you could have waited for price goes down, down and now enter here, which is what I’ve done, I entered here. My stop is running beneath those lows there. That’s another extra position, that’s just a break-even so ignore that, but my main stop from my main position is here, below that area and I’m looking to target these highs here, at the D leg.

Just show you another example, ABC Trading. Here you can see, is the A to B leg, then B to C leg and then, for me, my entrance, if I was trading this, I would have traded here. Stochastics have turned to the downside. I used the settings 10 3 3 and stop running above the high or more. For me, I would just turn up on these highs and then you’re trying to trade an extension of that A to B leg, C to D leg.

So, have a look for those kinds of things in the markets. Basically, look for prices making new highs or new lows. That’s the kind of best example of this like you can see here, like A-B leg, C-D leg, great, but what’s interesting here is this leg here because you can see it’s making new lows. So A to B, B to C and then C to D should be exactly the same length as the A to B leg.

Hope that helps, hope it gives you a way of thinking and it’s just a brief introductory video on how to trade and how trading can be as simple as A, B, C, and D.