Each turning point (X, A, B, C, and D) represents a significant high or significant low on a price chart. These points define four consecutive price swings, or trends, which make up each of the four pattern “legs.” These are referred to as the XA leg, AB leg, the BC leg, and the CD leg. Bullish patterns help identify higher probability opportunities to buy, or go “long.” In addition to the following guidelines, ABCD pattern rules/characteristics are still in effect and must be observed (for example, warning signs such as wide-ranging candles and/or gaps prior to pattern completion).
1. Price swing from A up to D ideally at the 61.8% or 78.6% retracement of XA
-Valid ABCD pattern must be observed in move from A-to-D.
2. Time of AD ideally "equal" to XA, but may fall within 61.8%-161.8% time of XA
3. Limited instances where ABCD move completes at 100% of XA (double top)
-Note: Time of XA and AD should be equal for “true” double top
4. Pattern failure occurs when price moves beyond point X, and may indicate a strong continuation move is in progress
-Price typically moves to 127.2% or 161.8% of XA
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