The ABCD Pattern
Let’s kick things off with the most straightforward harmonic pattern—the ABCD pattern. What could be simpler than learning your ABCs? Just tack on a “D” at the end, and voila! You’ve got a chart pattern.
To identify this pattern, you’ll need a sharp eye and your trusted Fibonacci retracement tool.
For both bullish and bearish ABCD patterns:
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AB and CD are called the legs.
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BC is the retracement or correction.
Here’s how the Fibonacci levels come into play:
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BC should retrace 61.8% of the AB move.
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CD should extend to 127.2% of the BC leg.
Sounds simple enough, right? Just wait for the pattern to fully form—when the price hits point D—before considering a trade.
Bonus Guidelines for a Perfect ABCD Pattern:
If you want to be extra precise, make sure these two conditions are also met:
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The length of AB should equal the length of CD.
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The time it takes for price to move from A to B should be roughly equal to the time from C to D.
The Three-Drive Pattern
The Three-Drive pattern is like the ABCD’s more advanced cousin—it includes three legs (drives) and two corrections (retracements).
This pattern also serves as a blueprint for the famous Elliott Wave structure.
Just like before, your Fibonacci tool and a bit of patience will come in handy.
For both bullish and bearish setups, here's what to look for:
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Retracement A should be 61.8% of Drive 1.
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Retracement B should be 61.8% of Drive 2.
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Drive 2 should extend 127.2% of Retracement A.
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Drive 3 should extend 127.2% of Retracement B.
Once the third drive completes, that’s your potential entry signal for a reversal—go long or short depending on the setup.
Pro tip: When price reaches point B, you can already start planning your trade by setting entries around the 1.272 extension level.
Extra Validation Rules:
For a more accurate pattern:
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The duration of Drive 2 should match the duration of Drive 3.
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The time taken for Retracements A and B should also be equal.