The ABCD and the Three-Drive

The ABCD

As we have mentioned the different types of harmonic patterns in the past lesson, Now Lets start this lesson with the simpler harmonic pattern. So what could be simpler than the good old ABCs？

Here We‘ll just bring in another letter at the end, and we’ve got the ABCD chart pattern as simple than you thought. To easily point this chart pattern out, all you need are sharp hawk eyes and the helpful Fibonacci chart tool. For both the bullish and bearish versions of the ABCD chart pattern, the lines AB and CD are called as the legs while BC is called the correction or retracement. When you use the Fibonacci retracement tool on leg AB, the retracement BC should reach the 0.618 level. Next, the line CD should be the 1.272 Fibonacci extension of BC. Sounds simple right？ So All you have to do is wait for the whole pattern to complete and extend point D before you take any short or long positions.

But when you choose to be more strict about it, then you need to think about these set of rules for a valid ABCD pattern:

• The length of line AB should be equal to the length of line CD.

• The time taken for the price to go from A to B should be equal to the time it takes for the price to move from C to D.

Three-Drive

The three drives pattern consists of a series of upper highs or higher lows. It is similar to the ABCD pattern. The difference is that a Three drives pattern is made of 5 legs, while an ABCD pattern has only 4. Simple as Burger, this three-drive pattern is the fore-elder of the Elliott Wave pattern. Usually, youll need your hawk eyes, the Fibonacci tool, and a smidge of patience on this one.

As you can notice from the charts above, point A should be the 61.8% retracement of drive 1. The same applies to point B should be the 0.618 retracement of drive 2. Then, drive 2 should be the 1.272 extension of correction A and drive 3 should be the 1.272 extension of correction B. The moment the whole three-drive pattern is complete, that‘s when you can pull the alarm on your long or short trade. Generally, when the price extend point B, you can already set your short or long orders at the 1.272 extension so that you would not be left over. But first, it’d be better to check if these rules remain true:

• The time it takes the price to complete drive 2 should be equal to the time it takes to complete drive 3.

• The time to complete retracements A and B should be equal.