Pattern Tools

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XABCD Pattern

A powerful tool for harmonic pattern analysis:

• Basic Structure:
  • Five control points (X, A, B, C, D)
  • Four connecting legs (XA, AB, BC, CD)
  • Each point represents significant price high or low
  • Adjacent legs move in opposite directions
• Identified Patterns: Four major harmonic patterns with bullish or bearish variations:
  • Gartley
  • Butterfly
  • Crab
  • Bat
• Usage:
  • Manually position five points at key swing highs/lows
  • Adjust points to match specific pattern requirements
  • Analyze potential reversal zones
  • Identify potential price targets
• Customization:
  • Adjust point positions
  • Change line properties
  • Modify pattern colors

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Cypher Pattern

A precise harmonic pattern for identifying high-probability reversal points:

• Origin: Developed by Darren Oglesbee
• Structure: Five key points (X, A, B, C, D) forming four legs
• Key Feature: Highly accurate Potential Reversal Zone (PRZ)

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Pattern Structure

• XA leg: Initial price movement
• AB leg: First correction after XA move
• BC leg: Price movement following the correction
• CD leg: Final move to the reversal point D
• PRZ (Potential Reversal Zone): Located in XD region with Fibonacci ratio 0.768-0.886

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Pattern Variations

• Bullish Cypher:
  • Forms an M-shaped pattern
  • Indicates upcoming uptrend after correction
  • Entry point at D for long positions
• Bearish Cypher:
  • Forms a W-shaped pattern
  • Signals beginning of downtrend after temporary rise
  • Entry point at D for short positions

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Identification Tips

• Use Fibonacci tools to confirm ratio relationships
• Look for precise geometric formations
• Confirm with additional indicators at point D
• Watch for reversal candlestick patterns at PRZ

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Head and Shoulders Pattern

• Left shoulder
• Head (central peak/trough)
• Right shoulder
• Neckline (horizontal support/resistance)

• Bearish Head and Shoulders:
  • Forms at market tops
  • Signals upcoming downtrend
  • Head higher than both shoulders
• Bullish Head and Shoulders (Inverse):
  • Forms at market bottoms
  • Signals upcoming uptrend
  • Head lower than both shoulders

1. Previous Trend: Must form after established trend
2. Left Shoulder: Initial peak/trough with high volume
3. Head: Higher peak (or lower trough) than shoulders
4. Right Shoulder: Similar height to left shoulder
5. Neckline: Connecting line of support/resistance
6. Volume: Typically decreases throughout formation

• Price breaks neckline after right shoulder
• Bearish: Break below neckline
• Bullish: Break above neckline
• Often accompanied by volume increase

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ABCD Pattern

• 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

• 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

1. 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
2. Classic ABCD:
   • CD leg extends 127.2% or 161.8% of BC leg
   • Uses key Fibonacci extension levels
   • Often forms in trending markets
3. 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

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Triangle Pattern

• Basic Structure:
  • Four control points (A, B, C, D)
  • Points placed on alternating highs and lows
  • A and C on consecutive highs (or lows)
  • B and D on consecutive lows (or highs)
  • Creates converging trendlines
• Triangle Variations:
  1. Symmetrical Triangle:
     • Support and resistance lines converge with similar slopes
     • Both lines move toward a central apex
     • Generally considered a continuation pattern
     • Expected breakout in direction of previous trend
     • Unexpected breakout direction signals potential trend reversal
  2. Ascending Triangle:
     • AC line forms flat resistance
     • BD line forms ascending support
     • Bullish pattern suggesting upward pressure
     • Expected breakout above resistance line
     • False breakouts possible below support line
  3. Descending Triangle:
     • BD line forms flat support
     • AC line forms descending resistance
     • Bearish pattern suggesting downward pressure
     • Expected breakout below support line
     • False breakouts possible above resistance line

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Three Move Pattern

A precise reversal pattern requiring symmetry in both price and time:

• Basic Structure:
  • Five key points creating three drives and two retracements
  • Three drive points (1, 2, 3) following the trend direction
  • Two retracement points (A, C) moving counter to the trend
  • Complete pattern signals potential trend reversal
• Pattern Requirements:
  • Symmetry: Both price movements and time duration must be proportional
  • Extensions: Drives 2 and 3 should extend 127.2% or 161.8% of retracements A and C
  • Retracements: Points A and C typically retrace 61.8% or 78.6% of previous drives
    • In strong trends, may only retrace 38.2% or 50%
  • Time Symmetry: Horizontal distance between points should be approximately equal
• Pattern Variations:
  • Bullish Three Drives:
    • Drives move downward with trend
    • Final drive signals potential upward reversal
  • Bearish Three Drives:
    • Drives move upward with trend
    • Final drive signals potential downward reversal

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Elliott Impulse and Elliott Correction

• 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):
  1. Wave Structure: Each impulse consists of 5 waves, with waves 1, 3, and 5 being impulses themselves, and waves 2 and 4 being corrections
  2. Wave 2 Limitation: The second wave never retraces more than 100% of wave 1 (never goes beyond the starting point of wave 1)
  3. Wave 3 Extension: The third wave always moves beyond the end of wave 1, often the longest and strongest wave
  4. Wave 3 Prominence: Among waves 1, 3, and 5, wave 3 is never the shortest and frequently the longest
  5. Wave 4 Boundary: The fourth wave typically doesn’t enter the price territory of wave 1 (no overlap)
• Elliott Correction Structure (3 waves):
  1. 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)
  2. Wave B Characteristics: Wave B is typically shorter than wave A, showing the underlying strength of the main trend
  3. 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