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ABCD Pattern
ABCD Patterns start with a strong upward move. Buyers are aggressively buying a stock
from point A and making constantly new highs of the day (point B). You want to enter the
trade, but you should not chase the trade, because at point B it is very extended and already
at a high price. In addition, you cannot say where your stop should be. You must never
enter a trade without knowing your stop.
At point B, traders who bought the stock earlier start slowly selling it for profit and the
prices come down. Still you should not enter the trade because you don’t know where the
bottom of this pull back will be. However, if you see that the price does not come down
from a certain level, such as point C, it means that the stock has found a potential support.
Therefore, you can plan your trade and set up stops and a profit taking point.
2. I watch the stock during its consolidation period. I choose my share size and stop
and exit strategy.
3. When I see that the price is holding support at level C, I enter the trade close to the
price of point C in anticipation of moving forward to point D or higher.
4. My stop is the loss of point C. If the price goes lower than point C, I sell and accept
the loss. Therefore, it is important to buy the stock close to point C to minimize the
loss. Some traders wait and buy only at point D to make sure that the ABCD Pattern
is really working. In my opinion that is reducing your reward and increasing your
risk.
5. If the price moves higher, I sell half of my position at point D, and bring my stop
higher to my entry point (break-even).
6. I sell the remaining position as soon as my target hits or I feel that the price is losing
steam or that the sellers are acquiring control of the price action.
Entry Rule:
Rule No-2 : Wait until to breakout and close the candle 20 SMA