Lots of us hear from the technical analysts this term AB=CD and want to know more about it.
AB=CD pattern is one of the most famous harmonic patterns, which can help us to determine when to enter the market or rather when to make the decision of entering short or long positions.
The pattern represents the rhythmic movements for the price using Fibonacci levels. This geometric pattern consists of three consecutive price swings, in other words three price trends.
The pattern requires specific ratios of Fibonacci as explained below.
First: C point must retrace at 61.8% Fibonacci from AB leg or (78.6%).
Second: D point occurs at 127.2% or 161.8% projection of BC leg.
Four important notes:
1) When (C) point retraces to 61.8% the projection will be at 161.8%.
2) When (C) point retraces to 78.6% the projection will be at 127.2%.
3) In rare cases the D point indicates reversal from 100% Fibonacci level and it makes a potential double top or double bottom formation.
4) CD may equal AB in time.
The images below explain the story of this successful pattern.
Bullish AB=CD
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Bearish AB=CD
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Kinds of AB=CD pattern
Classic AB=CD
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AB=CD Extension
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The technical objective:
Mainly the price retraces 38.2% Fibonacci level of CD leg and the extended targets reside around 61.8% of this leg.
Note that it rarely reaches 161.8% of CD leg.
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