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Harmonic Trading: AB=CD Pattern

In the last post was the focus on the three drive pattern and harmonic trading. In this post is the focus on the AB=CD pattern.

AB=CD Pattern
In an AB=CD pattern is A-B = C-D; the time duration between A to C is the same as the time duration between B to D. 

The same time duration is in this context approximately the same time duration. An example is a 20 week time duration from A to C and 15 weeks time duration from B to D.  

AB=CD Pattern and the Fibonacci numbers
The AB=CD pattern is a pattern that indicates a trade opening with the Fibonacci numbers 0,618, 0,789, 1.27 and 1.618.

The calculating in the AB=CD pattern is

AB=CD

AB*1, 27=CD

AB*1, 618=CD

Illustration of the AB=CD pattern
In the image are a bullish and a bearish pattern illustrated

Bullish Pattern

The image illustrates a bullish AB=CD pattern with the Fibonacci numbers 0,618, 0,789 (AB) and the CD numbers 1,27 and 1,618.

A buy opening is likely if the price curve is in the harmonic area 0,618, 0,789, 1,27 and 1,618 at point A, B, C and D; the buy opening is likely as the AB=CD pattern indicate a rise in the price curve.

A stop loss should be a couple of pips below point D; remember that a stop loss is set individually and that the numbers are not exact numbers but numbers in an area; a harmonic area.

Bearish Pattern

The image illustrates a bearish AB=CD pattern with the Fibonacci numbers 0,618, 0,789 (AB) and the CD numbers 1,27 and 1,618.

D is a likely sell point if the price curve is in the harmonic area 0,618, 0,789, 1,27 and 1,618 at point A, B, C and D; the sell is likely as the AB=CD pattern indicate that the price curve decrease.

A stop loss should be a couple of pips above point D; remember that a stop loss is set individually and that the numbers are not exact numbers but numbers in an area; a harmonic area.

Calculating the AB=CD pattern in a spreadsheet
An example of how to calculate an AB=CD pattern in a spreadsheet is illustrated in the images below.

Spreadsheet; bullish AB=CD pattern

Spreadsheet; bearish AB=CD pattern

Conclusion
In this post is illustrated how an AB=CD pattern looks like and how a spreadsheet could look like calculating an AB=CD pattern.

The purpose in this post is illustrative and only the basic in the AB=CD pattern is illustrated as the Fibonacci numbers could be more extreme than the numbers used in this post. The numbers used in this post is the ideal numbers in an AB=CD pattern.

In some AB=CD patterns are the AB=CD pattern also in the main AB=CD pattern.

Harmonic Trading: Bullish and Bearish Three Drives

Harmonic trading is a trading technique recognizing a specific pattern with the Fibonacci ratios. The technique assumes the patterns repeat themselves.

Harmonic trading is to identify these patterns and to identify when to enter or exit a position based on the historic cycles in the patterns.

The patterns are not 100% accuracy in connection to the Fibonacci ratios but approximately to the numbers. The important is to recognize the pattern.

The technique is useful to any time frame.

The Fibonacci Numbers
Harmonic Trading is based on the Fibonacci ratios. The primary ratios are the numbers 0.618, 0.786, 1.27, 1.618 and the secondary numbers are 0.382, 0.50, 1.00, 2.0, 2.24, 2.618, 3.14.

The most used numbers are the primary numbers; the ratios 2.24, 2.618, 3.14 are considered as extreme numbers.

The ratios are used to identify the cycle in the historical pattern and to identify the entry point, exit point and stop loss.

The Three Drives
A three drive is a 3 wave pattern following the Fibonacci numbers. The pattern could be a bearish or a bullish pattern.

A Bearish Three Drives
The pattern is illustrated in the image

The image illustrates a three wave cycle; the impulse waves are the Fibonacci numbers 1,27 / 1,618 and the corrective waves are the 0,618 / 0,786. At the point (3) the pattern will end and the price curve will be bearish. Point (3) is the exit point.

Calculation - Fibonacci numbers 0,618 and 1,27
An example; the price is 40 and rise to 50; the pattern rise with the numbers 0,618 and 1,27; the calculation is

0 – 1 (corrective wave)
40 – 50 =  10 * 0,618 = 6,18
50 – 6,18 = 43,82

1 – 2 (impulse wave)
40 – 50 = 10 * 1,27 = 12,7
43,82 + 12,7 = 56,52

1 – 2 (corrective wave)
40 – 50 = 10 * 0,618 = 6,18
56,52 - 6,18 = 50,34

2 – 3 (impulse wave)
40 – 50 = 10 * 1,27 = 12,7
50,34 + 12,7 = 63,04

63,04 is the exit point if the Fibonacci numbers are 0,618 and 1,27.

A Bullish Three Drives
The pattern is illustrated in the image

The image illustrates a three wave cycle; the impulse waves are the Fibonacci numbers 1,27 / 1,618 and the corrective waves are the 0,618 / 0,786. The pattern will end at the point (3) and the price curve will be bullish. Point (3) is the stop loss point and the entry point.

Calculation - Fibonacci numbers 0,618 and 1,27
An example; the price is 50 and decrease to 40; the pattern decreases with the numbers 0,618 and 1,27; the calculation is

0 – 1 (corrective wave)
50 - 40 = 10 * 0,618 = 6,18
40 + 6,18 = 46,18

1 – 2 (impulse wave)
50 - 40 = 10 * 1,27 = 12,7
46,18 - 12,7 = 33,48

1 – 2 (corrective wave)
50 - 40 = 10 * 0,618 = 6,18
33,48 + 6,18 = 39,66

2 – 3 (impulse wave)
50 - 40 = 10 * 1,27 = 12,7
39,66 - 12,7 = 26.96

The entry point and stop loss are set at the price level 26,96 if the Fibonacci numbers are 0,618 and 1,27.