Example of an AB=CD
Buy and sell signals are generated after the final C-to-D leg, when a reversal is expected to occur. If the pattern is trending higher, you can look to sell or enter a short position at Point D. If the pattern is trending lower, you can look to buy the security at Point D in anticipation of a turnaround.
Stop-loss points are best placed just above or below Point D, depending on the direction of the trade. If the move extends beyond that point, the chart pattern is invalidated and the reversal is less likely to occur.
Take-profit points are typically placed using Fibonacci levels. For example, you might look for a move back to the original Point A and move a trailing stop-loss to 28.2%, 50% and 61.8% Fibonacci levels along the way.
As with most forms of technical analysis, the AB=CD chart pattern works best when combined with other technical indicators or chart patterns, such as the relative strength index (RSI) or pivot points. You may also want to use volume as a confirmation of a reversal once the AB=CD chart pattern makes a prediction.
Stop-loss points are best placed just above or below Point D, depending on the direction of the trade. If the move extends beyond that point, the chart pattern is invalidated and the reversal is less likely to occur.
Take-profit points are typically placed using Fibonacci levels. For example, you might look for a move back to the original Point A and move a trailing stop-loss to 28.2%, 50% and 61.8% Fibonacci levels along the way.
As with most forms of technical analysis, the AB=CD chart pattern works best when combined with other technical indicators or chart patterns, such as the relative strength index (RSI) or pivot points. You may also want to use volume as a confirmation of a reversal once the AB=CD chart pattern makes a prediction.
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