Technical Definition
The AB = CD pattern is a harmonic price pattern that represents price symmetry, where the distance and time of the AB leg are approximately equal to the CD leg. The pattern reflects a balanced market move and helps traders identify potential reversal or reaction zones rather than guaranteed turning points. Completion of the CD leg marks an area where price is likely to pause, reverse, or consolidate.
It is a zigzag that looks like lightning. The first move (AB) matches the second move (CD). When the second move equals the first, the market often takes a break.
Markets move in symmetrical price waves
Market Psychology
Conviction
Strong participation drives the AB leg. One side controls price action.
Profit Booking
During BC retracement, early participants book profits. Counter-trend moves occur.
Resumption
Trend resumes (CD leg) as confidence returns. Late buyers/sellers join.
Decision
At CD completion, enthusiasm fades. Risk/reward is reassessed, leading to a reaction.
Pattern Anatomy
AB Leg (Impulse)
Initial strong directional move establishing the trend component.
BC Leg (Retracement)
Counter-trend pullback, typically retracing 38.2% to 61.8% of the AB leg.
CD Leg (Extension)
Resumption of the trend. ideally equal in length and time to the AB leg.
Point D (Completion)
Convergence zone where AB equals CD. High probability of price reaction.
Pattern Rules
Impulse
Identify a clear impulse move from A to B.
Retracement
BC retracement should be 38.2%–78.6% of AB.
Extension
CD leg should be approximately equal to AB leg.
Time
Time symmetry (time of AB ≈ time of CD) increases reliability.
Confirmation
Wait for price to react at Point D.
Tactical Execution
Enter at point D
Stop loss below D (based on fibs)
Target 0.382/0.618 retracement of AD
Signal Confirmation
- Reversal candlestick patterns at point D (e.g., Doji, Pin Bar)
- Momentum divergence (RSI/MACD)
- Volume slowdown near completion
- Break of minor structure after completion