What is the ABCD pattern in trading?

A pattern of two legs in the same direction with a pullback between them: up from A to B, down to a higher low at C, then up again through B toward D. A bearish version is the mirror image.

What are the rules of the ABCD pattern?

C must hold above A, the pullback should be on lighter volume than the first leg, and the trade is taken as price breaks back above B with a stop under C. These are conventions, not exchange rules.

What ratios does the ABCD pattern use?

The simplest version expects the leg C to D to equal A to B. Harmonic traders also look for C to retrace a Fibonacci share of A to B, often 61.8% or 78.6%, and project D from that.

What is the difference between an ABC and an ABCD pattern?

An ABC is the first leg and the pullback, three points. The ABCD adds the second leg to D. Traders trade the ABC by buying near C and the ABCD by buying the break of B.

Is the ABCD pattern the same as a bull flag?

They are close cousins. A bull flag is a tight, orderly pullback after a pole. An ABCD allows a deeper pullback to a clear higher low, and measures the second leg from it.

Glossary

ABCD pattern

The ABCD pattern is a four-point chart pattern: a strong move up from A to B, a pullback to a higher low at C, and a second move up through B toward D. Day traders buy as price breaks back above B, with a stop under C, and often target a second leg the same length as the first.

Why it matters to a small-cap momentum trader

On a small cap that gaps up on news, the first push often runs before most traders can get in. The ABCD is the second chance: the pullback to C shows buyers stepping back in above the start of the move, and the break of B shows they are strong enough to take out the first high. It gives a clear entry, a clear stop and a target you can measure before you trade.

How it is traded

A to B. The first leg: a sharp move up on heavy volume, often from the open or out of the pre-market, to a high at B.

B to C. The pullback, on lighter volume, to a higher low at C that holds well above A. Traders like it to hold VWAP or a level that mattered earlier.

Entry. As price breaks back above B, or on the first new high out of a tight range just under B.

Stop and target. The stop goes under C. The common target is D, where the second leg C to D is as long as the first leg A to B.

Some traders enter earlier, as price turns up from C, for a better price and a wider risk. Harmonic traders use stricter versions with Fibonacci ratios between the legs; on a 1-minute small-cap chart most traders keep it to the shape and the equal legs.

The ABCD in Hindsight Markets

The chart's drawing tools include an ABCD Pattern tool, so you can place the four points as the replay forms them and see the measured D before price gets there.

A worked example: entry, stop and the measured move

An illustration with made-up numbers, not a real stock or a real day.

The legs. A at 2.00, B at 2.60: the first leg is 0.60. The pullback finds a low at C, 2.30.

The trade. Buy the break of B at 2.61. Stop at 2.29, under C. Risk = 2.61 − 2.29 = 0.32 a share.

The target. D = C + (B − A) = 2.30 + 0.60 = 2.90. From the entry that pays 2.90 − 2.61 = 0.29, a little less than the risk.

Entering at C instead. Buying the turn at 2.34 with the same stop risks 0.05 to make 0.56 at D, more than eleven times the risk, but it buys many turns that fail before B.

The example shows why the break of B is not always the best entry: when C is a deep pullback, the measured target leaves little room above B.

Common mistakes small-cap traders make with the ABCD

Calling a lower low a C. If the pullback falls to or below A, the pattern is broken. C has to be a higher low.
Buying the break of B without volume. A thin break of the first high is easy to reverse. Watch the tape for size coming in.
Ignoring the risk to reward. A deep C puts the stop far below B. Work out the risk and the measured target before you take the trade.
Treating D as a ceiling. The measured move is a guide for taking some profit, not a promise the stock stops there.

Common questions

What is the ABCD pattern in trading?: A pattern of two legs in the same direction with a pullback between them: up from A to B, down to a higher low at C, then up again through B toward D. A bearish version is the mirror image.
What are the rules of the ABCD pattern?: C must hold above A, the pullback should be on lighter volume than the first leg, and the trade is taken as price breaks back above B with a stop under C. These are conventions, not exchange rules.
What ratios does the ABCD pattern use?: The simplest version expects the leg C to D to equal A to B. Harmonic traders also look for C to retrace a Fibonacci share of A to B, often 61.8% or 78.6%, and project D from that.
What is the difference between an ABC and an ABCD pattern?: An ABC is the first leg and the pullback, three points. The ABCD adds the second leg to D. Traders trade the ABC by buying near C and the ABCD by buying the break of B.
Is the ABCD pattern the same as a bull flag?: They are close cousins. A bull flag is a tight, orderly pullback after a pole. An ABCD allows a deeper pullback to a clear higher low, and measures the second leg from it.

How to practise it in Hindsight Markets

Open a past trading day and run the Small Cap Low Float Top Gainers scan.
On a 1-minute chart, place A and B with the ABCD Pattern tool once the first leg tops out.
Add C when the pullback turns, and draw a horizontal ray at B with a price alert just under it.
Work out the risk to C and the measured D before you trade, and skip it if D does not pay for the risk.
Take the break with a stop order under C, then check Most in your favour in the journal against D.

Practice this on a real past day in Hindsight Markets

Replay a morning runner, draw the ABCD as it forms, and practise the break of B with a stop under C.