What it means
An AB=CD pattern is a four-point zig-zag where the CD leg is equal in length (and often time) to the AB leg. BC is a retracement of AB, typically between 0.382 and 0.886.
Point D is a potential reversal zone (PRZ).
Why traders use it
Symmetry gives a defined area where the move may end, with a clear invalidation just beyond it. It is the simplest harmonic pattern.
Chart examples
Bullish AB=CD
How to identify it objectively
- 1A to B: the first leg.
- 2B to C: a retracement of 0.382 to 0.886 of AB.
- 3C to D: a leg equal to AB (sometimes 1.272 or 1.618 of BC).
- 4Mark D as a zone and wait for a reaction.
Bullish use
- 1A high, B low, C lower high, D low.
- 2CD equals AB.
- 3A bullish reaction at D.
Bearish use
- 1A low, B high, C higher low, D high.
- 2CD equals AB.
- 3A bearish reaction at D.
What confirms it
- BC within the allowed range.
- D coincides with another level.
- A reversal close at D.
What invalidates it
- Price closes well beyond D.
- BC outside 0.382–0.886.
How a hypothetical setup is built
Entry
At D after a reversal close.
Stop
Beyond D by a set buffer.
Target
0.382 and 0.618 of the CD leg.
A hypothetical illustration of how the concept is turned into a plan, not a recommendation. Practise it on a paper account first.
Related concepts
Historical testing
Not tested on The Tradeskill.
Limitations: when it fails
- Many patterns overshoot D.
- Pattern selection is subjective.
- Time symmetry is often ignored.
Knowledge check
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