Your entry should typically be your C when the stock breaks the high of day in the afternoon. It’s also the basis for a lot of other long patterns like the VWAP-hold, high-of-day break and the OTSwizzle. While you’re monitoring the stock, be sure to identify any pivot points, Fibonacci levels, or vwap boulevard lines that could give you an area of confluence to bolster your short thesis.

There are a lot of variables to consider compared to other patterns. On July 6, 2021, Newegg announced it would make rare computer parts available to the public through a lottery system. The company also launched a service to pre-build customers’ computers before they’re shipped. Due to all this, buying the C leg in anticipation of an overnight gap-up creating the D leg was a great setup. Set an alert for when the stock approaches the top of the A leg in the afternoon. This lets you be ready for breakouts without having to watch every tick.

How to trade an abcd pattern

Go back to the CLOV example from earlier to see that on the chart. And since the stock closed fairly strong, traders could have swung this overnight. The stock gapped up the following morning to the $3,730 level. Note the spike in volume at the morning high of the day.

In an abcd trading pattern, you want to see volume increase on the downward/upward initial leg, then recede on the BC consolidation, and then increase again on the last leg of the pattern. Before you implement the strategy, you should familiarise yourself with resources on how ABCD patterns abcd stock work. You can go through our online trading courses on IG Academy to learn more about technical analysis and chart patterns. Alternatively, head over to our dedicated forum, IG Community – ABCD pattern to discover how other fellow traders have fared using the trading strategy.

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Once you identify this first leg, you can then anticipate the B to C pullback. To draw it correctly, wait for the top or bottom to form on the B to C pullback, then you can attach this line to the first line you draw from the high of A to the low of B. Lastly, you’ll start your third and final trendline from the high of C to the low of D. You need to anticipate the final leg ( D ) of the cycle. This is when the price movement comes close or breaks the risk level you set.

The ABCD trading pattern may be just what you need. This tool may help you identify potential reversals and decide when to enter a trade. Keep reading to learn more about the ABCD pattern and how to apply it to your own trading strategy.

One Platform. One System. Every Tool

It is also why the consolidation in C produces a higher low. This information has been prepared by IG, a trading name of IG Markets Limited. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result.

• To draw it correctly, wait for the top or bottom to form on the B to C pullback, then you can attach this line to the first line you draw from the high of A to the low of B.
• Cambium Learning Group, Inc. has a technical analysis rating based on Technical Indicators (), Simple Moving Averages and Exponential Moving Averages.
• However, there are many alternative ways to trade the abcd pattern as a scalper in the direction of the primary trend.
• The harmonic pattern of movement can apply in different market conditions that follow both bullish and bearing swings.

Now, it’s your time to take a buy call and set your stop loss below point (C). Your exit should be when the stock signals weakness as shown in the above figure ( weakness means you spot any reversal candlestick during an uptrend ). StocksToTrade in no way warrants the solvency, financial condition, or investment advisability ofany of the securities mentioned in communications or websites. In addition,StocksToTrade accepts no liability whatsoever for any direct or consequential loss arising from any useof this information. Conversely, in a downtrend, sellers are in control the entire way from A to D. However, like the long example, the idea is that once sellers have a “three-wave” move down, it will likely result in a near-term reversal pattern at D.

Step 3: Set Alerts

See additional information on the Disclosures webpage. Trades in your Webull Advisors account are executed by Webull Financial LLC, a member of the Securities Investor Protection Corporation (SIPC). That means your assets are protected up to $500,000 in value, including $250,000 in any cash awaiting reinvestment.

You can set trading alerts to receive a notification when the market conditions change from the A leg of the cycle so that you don’t miss an opportunity to take a position. Remember that you shouldn’t https://www.bigshotrading.info/blog/how-to-trade-forex-with-a-100-beginners-guide/ rely on signals and alerts to inform you of how your trade is going – it’s your responsibility to monitor your position. Let’s look at one more example of Starbucks Corporation on 16th Dec ’21.