Basic trading strategy using the Harmonic AB = CD + Fibonacci pattern-Crypto Academy / S4W2 - Homework position for [@lenonmc21]

Harmonic Trading refers to the sole idea that trends are harmonic occurrence meaning they are divided into waves that may predict price direction.

In simple terms, this means that market is always repetitive, whatever happens in the past is most likely to happen in the future although not 100% in the same pattern. The combination of these patterns and math into a trading method that is precise and based on this fact that patterns repeat is Harmonic Trading.

However, In a downtrend or when a market is selling, a successful impulse move is equal or almost equal to previous move of course after a retracement/pullback is formed in this sense the pullbacks are also same or similar size.

What the pattern AB = CD is and how can we identify it

AB=CD pattern are harmonic patterns that is used to measure how long current moves are bound to last and can also be used to set apart reversal points. The harmonic pattern rely on 4 movements that vary in length and known as points A,B,C,D.

The ideality of this pattern is that it forms a wave movement ,aligns with the Fibonacci levels and aids the effectiveness of the harmonic pattern and enhances entry and exit performance.

How to Identify The AB=CD pattern

The AB=CD patterns can be seen in a bullish and bearish trend.

: To identify an incoming bullish pattern, the points must be validated and this can only be done when there is a price decline.
And to validate this, we would use the Fibonacci Retracements.

• After price makes an impulse move(point AB)

• Take the Fibonacci retracement tool and place it from A to B

• Point C should be between 0.618 and 0.786 on the Fibonacci retracement tool and lower than point A.

• Point D should be between 1.272 and 1.618.

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: To identify an incoming Bearish pattern, vice versa the price must be rising, done when the price is in the bullish trend.

• After price makes an impulse move(AB), the downtrend movement should not go beyond point A or B.

• Pickup the Fibonacci retracement tool and place from point A to B.

• The impulse move retracement point C should be between 0.618 and 0.786 to make it valid and point C must be higher than point A.

• From C-D is the distance to be made by next impulse move CD.

• Point D must be between 1.272 and 1.618.

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_{Below are some charts to further explain what I mean}

Clearly describe the entry and exit criteria for both buying and selling using the AB = CD pattern?

Entry Criteria(Buying and Selling)

In an uptrend, the market makes an impulse move AB, then makes a very little sell pullback which is BC at the point the pull back stops is called point C. The distance from the end of the impulse move to the end of the pull back BC , the distance AB should be more than it. Now ,when the pull back( point C) there is another impulse move CD. When this pattern has been identified.

Pick up the Fibonacci retracement tool place is and confirm that C is between 0.618 and 0.786 and

Point D meets with Fibonacci level between 1.272 and 1.618. This is what is used to confirm the entry.

Note: The points C and D must be in this range for the 4 points to be valid. If it isn't, it is invalid and another AB=CD pattern must be sought out for

With this entry confirmed, In an uptrend, the AB=CD pattern is used to know when to sell and In a downtrend, it is used to know when to buy.
In an uptrend, when it is been confirmed that C and D are in their respective points, when the next bearish candle is forming you sell. In a downtrend, when you see the next bullish candle and having confirmed point C and D you buy.

Exit Criteria(Buying and Selling)

To exit the market, the Stop Loss ideally is always 2% below entry point(point D) for a buy and above entry point for a sell.