It has been said many times in trading to study, learn, and trade methods that are simple in nature. The AB=CD pattern is one of the most basic and simple patterns in technical analysis. If the trader will take the time to learn this pattern and its variations, it will be time well spent.
Vibrations in the markets can be thought of as waves. The bigger the wave, the farther it will travel. Eventually the wave will lose momentum as it travels, and the momentum will dissipate. The same analogy could be used describing an object being dropped. The larger the object and the greater the distance it is dropped, the larger the vibration that is created as it meets with a surface. Price action movement is very similar to this.
Using the patterns presented in this article, we find that the swings or vibratory moves in price are what we refer to as harmonic. They are price swings that are similar in length, they are repetitive, and are found in all time frames.
The easiest most simple harmonic pattern is the ABCD pattern and all you need to find and trade this pattern is a good eye, and the fibbonaci tool.
You can use this ABCD pattern in both bullish and bearish trends and they are a great way to get good entries along with doubling your profit once you get good at spotting them.
The AB=CD pattern is found in all markets and all time frames and also forms a part of the Three Drives pattern. The pattern is a measured move where the CD leg is similar in length to the AB leg and the time taken to reach each level is generally the same.
The swings AB and CD are known as legs and the BC swing is known as the correction or retracement. Now the way we find that out is using the fibbonacci tool. The BC swing should be a retracement / correction which finds support or resistance at one of these Fibonacci levels: .382, .50, .618, or .786. This correction or retracement is labeled BC and is the second leg of the pattern. The CD swing is found using the extension Fibb target levels of 1.272 or 1.618