A versatile four-point pattern for identifying potential reversal zones:Basic Structure:
Four control points (A, B, C, D)
Three connecting legs (AB, BC, CD)
Adjacent legs move in opposite directions
Points mark significant highs and lows
Pattern Formation:
First leg (AB): Initial price movement
Second leg (BC): Retracement of first move
Third leg (CD): Final move to completion point
These three legs combine to create recognizable price structures that signal potential reversals
Major Pattern Variations:
AB=CD Pattern:
Distance of AB approximately equals CD
Time duration of AB similar to CD
Creates symmetrical price movements
Signals potential reversal at point D
Classic ABCD:
CD leg extends 127.2% or 161.8% of BC leg
Uses key Fibonacci extension levels
Often forms in trending markets
ABCD Extension:
CD leg extends 127.2% or 161.8% of AB leg
Focuses on relationship between first and last legs
Potentially stronger reversal signals
Understanding Ratio Display:
The number shown between B&D represents the ratio of the CD leg relative to the BC distance. For example, when you see “127.9%” on the pattern, it means point D extends beyond point B by 27.9% of the BC distance. This corresponds to the 1.279 Fibonacci extension level (100% + 27.9%).Fibonacci Percentages:
The values 127.2% and 161.8% are Fibonacci extension levels derived from mathematical relationships found throughout nature and markets. These specific ratios help determine the likely extension of the CD leg based on previous price movements.Learn More: For detailed trading strategies and practical examples of the ABCD pattern, check out our comprehensive guide at Harmonic Pattern ABCD Education.
A systematic approach to market cycles based on Ralph Nelson Elliott’s wave theory:
Basic Concept:
Markets move in predictable, repeating wave patterns driven by human psychology
The fundamental pattern consists of 8 waves (5 impulse waves followed by 3 corrective waves)
These patterns appear at all scales, from minute-by-minute charts to multi-year trends
Elliott discovered that larger waves contain smaller waves with the same structure (fractal nature)
Wave Classifications:
Elliott Impulse (Motive Waves):
Move in the direction of the main trend
Consist of five distinct waves labeled 1-2-3-4-5
Generally stronger and longer than corrective waves
Create the primary movement in the market
Elliott Correction (Corrective Waves):
Move against the main trend direction
Consist of three distinct waves labeled A-B-C
Typically retrace a portion of the preceding impulse wave
Often more complex and difficult to identify than impulse waves
Elliott Impulse Structure (5 waves):
Wave Structure: Each impulse consists of 5 waves, with waves 1, 3, and 5 being impulses themselves, and waves 2 and 4 being corrections
Wave 2 Limitation: The second wave never retraces more than 100% of wave 1 (never goes beyond the starting point of wave 1)
Wave 3 Extension: The third wave always moves beyond the end of wave 1, often the longest and strongest wave
Wave 3 Prominence: Among waves 1, 3, and 5, wave 3 is never the shortest and frequently the longest
Wave 4 Boundary: The fourth wave typically doesn’t enter the price territory of wave 1 (no overlap)
Elliott Correction Structure (3 waves):
ZigZag Formation: The most common corrective pattern is a zigzag structured as 5-3-5 (five waves down, three waves up, five waves down in a bearish market)
Wave B Characteristics: Wave B is typically shorter than wave A, showing the underlying strength of the main trend
Wave C Extension: Wave C usually extends beyond the end of wave A, creating a new extreme in the correction
Wave Hierarchy Notation:
Main Waves: Marked as (1), (2), (3), (4), (5), (A), (B), (C) showing the larger degree pattern
Sub-waves: Marked as 1, 2, 3, 4, 5, a, b, c representing smaller waves inside the main waves
Analysis Scope: The pattern typically examines 600 previous bars to identify wave structures
Learn More: For a comprehensive guide on Elliott Impulses with detailed examples and trading strategies, check out our in-depth tutorial at MTC Education - Elliott Impulses.