The reader should keep in mind that these patterns are only probabilities, they are not certainties and trying to use these patterns without a solid understanding of them, and a sound money management strategy is equivalent to trading suicide. When the CD leg is extending beyond 8 bars in an up or down move the probability is for a price extension where CD will be 1.27 or 1.618 of the AB swing. Time Bars in the AB=CD pattern will usually be a range from 5 to 8 bars. If figuring the 1.27 or other extension numbers simply use that number in place of the 1.618. Which is the projection price at D for the 1.618 extension. The example in Figure 4 would be figured like this: To figure the extension of the CD leg use the difference of the AB leg and multiply by 1.27 or 1.618 then add that figure to the high of low of C. 786 retracement, the CD will most probably be a normal move equaling AB=CD. (See Figure 4) We would assume that prices would go much higher and possibly quite rapidly once the selling slows. This is a sign of the market absorbing a lot of selling at a high price, it is a shallow retracement and was not able to retrace to. For example assume that the AB leg was 15 trading bars to point B and now the BC leg has taken 8 bars and has only retraced. The slope of this BC leg is usually a good indication of what the next CD leg will be. BC legs usually will correct to one of the ratios. The slope or time frame of the BC move can also be helpful in determining the pattern. Watch the C leg, because if it starts fast, that is the faster Ferrari going further, faster. You can imagine as an example of this thrust principle – if you had 2 Ferrari automobiles on the racetrack, one with diesel fuel the other with high tech gasoline, it would be easy to understand the high tech gasoline powered Ferrari getting to the finish line first. This next sentence is very important, if the CD leg is made in just a few bars that will strongly indicate that the CD leg is going to be an expansion of the AB leg. D must exceed B in order for the pattern to complete at D and be a valid AB=CD. C can be a 1.00 retracement of the AB leg, this is a rare pattern and a double top or bottom, but it is a valid pattern.ģ. Meaning the retracement of AB cannot exceed 1.00Ģ. Here are three items that would invalidate the AB=CD pattern:ġ. When studying this pattern it is important to know what invalidates the pattern.
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