"A harmonic price structure that identifies potential reversal zones based on symmetry and measured price moves."
Definition
Markets often move in rhythmic, proportional waves. In the AB = CD pattern, price first moves from point A to B, then retraces to point C, and finally extends from C to D by approximately the same distance as AB. This equality suggests that the prior impulse has completed a full measured move. At point D, momentum often weakens as buyers or sellers reassess value, making it a critical decision zone.
Simple Explanation
"It is a zigzag that looks like lightning. The first move (AB) matches the second move (CD). When the second move equals the first, the market often takes a break."
Core Message
- Markets move in symmetrical price waves
- Equality of price legs signals balance
- Momentum often slows near pattern completion
- The pattern highlights reaction zones, not certainty
Visual Interpretation
AB Leg (Impulse)
Initial strong directional move establishing the trend component.
BC Leg (Retracement)
Counter-trend pullback, typically retracing 38.2% to 61.8% of the AB leg.
CD Leg (Extension)
Resumption of the trend. ideally equal in length and time to the AB leg.
Point D (Completion)
Convergence zone where AB equals CD. High probability of price reaction.
Summary
"Visually, the AB = CD pattern looks like two equal price waves moving in the same direction. The key insight is price symmetry."
Market Psychology
Conviction
- Strong participation drives the AB leg. One side controls price action.
Profit Booking
- During BC retracement, early participants book profits. Counter-trend moves occur.
Resumption
- Trend resumes (CD leg) as confidence returns. Late buyers/sellers join.
Decision
- At CD completion, enthusiasm fades. Risk/reward is reassessed, leading to a reaction.
Identification Rules
Impulse
Identify a clear impulse move from A to B.
Retracement
BC retracement should be 38.2%–78.6% of AB.
Extension
CD leg should be approximately equal to AB leg.
Time
Time symmetry (time of AB ≈ time of CD) increases reliability.
Confirmation
Wait for price to react at Point D.
Execution Strategy
Entry Signal
Enter at point D
Stop Loss
Stop loss below D (based on fibs)
Take Profit
Target 0.382/0.618 retracement of AD
Signal Confirmation
Will price reverse at Point D?
- Reversal candlestick patterns at point D (e.g., Doji, Pin Bar)
- Momentum divergence (RSI/MACD)
- Volume slowdown near completion
- Break of minor structure after completion
Caution: Do not blindly place limit orders at D. Strong trends can blow through harmonic zones.
Common Mistakes
Myth: Symmetry must be perfect
Approximate equality is acceptable. Focus on the "zone".
Myth: Guaranteed reversal
It defines a reaction area. Price might just pause before continuing.
How to Trade: AB = CD Pattern
Step-by-step masterclass on trading this pattern profitably.
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