Definition
Markets often move in rhythmic, proportional waves. In the AB = CD pattern, price first moves from point A to B, then retraces to point C, and finally extends from C to D by approximately the same distance as AB. This equality suggests that the prior impulse has completed a full measured move. At point D, momentum often weakens as buyers or sellers reassess value, making it a critical decision zone.
Simple Explanation
"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."
Core Message
- Markets move in symmetrical price waves
- Equality of price legs signals balance
- Momentum often slows near pattern completion
- The pattern highlights reaction zones, not certainty
Visual Interpretation
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.
Summary
"Visually, the AB = CD pattern looks like two equal price waves moving in the same direction. The key insight is price symmetry."
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.
Identification 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.
Execution Strategy
Entry Signal
Enter at point D
Stop Loss
Stop loss below D (based on fibs)
Take Profit
Target 0.382/0.618 retracement of AD
Signal Confirmation
Will price reverse at Point D?
- 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
Caution: Do not blindly place limit orders at D. Strong trends can blow through harmonic zones.
Common Mistakes
Myth: Symmetry must be perfect
Approximate equality is acceptable. Focus on the "zone".
Myth: Guaranteed reversal
It defines a reaction area. Price might just pause before continuing.
How to Trade: AB = CD Pattern
Step-by-step masterclass on trading this pattern profitably.
Quick Facts
Learning Path
Continue your financial education journey with our curated learning paths.
Explore Learning PathsVideo Coming Soon
Detailed video breakdown is in production.
Save to Diary
Save AB = CD Pattern to your personal collection for quick reference.
Advanced Course
Detailed walkthrough coming soon
More Patterns
Essential Reading
