ABCD Trading Strategy
The Day Trade Strategy we apply
The ABCD pattern is the most straightforward chart pattern to identify and therefore also the most straightforward one to apply. This does not guarantee success and big profits for granted. We need to approach this pattern very systematic and stick to our plan and strategy.
​
Below we describe how we apply this in real life.
How can we use the ABCD to profitable trade it?
Unless you have inside knowledge of a stock or have superman powers, is buying between A and B not the way to go. We don’t know how high B is and how much the price will fall afterwards. So chasing a trade, not knowing where to set a stop loss is really not an option.
And more importantly, we don’t know yet if we’re witnessing an ABCD pattern
So when do we step in?
I step in when the support is formed and after the upwards trend has started. Because it’s difficult to see if we are actually witnessing a support, we should hold our horses until the bounce back up is really started. It’s better to miss some pennies from the bounce up then to enter too soon and open your position before reaching C.
When I enter my trade right after C, I buy a quarter share size. When the rise is being confirmed, I add a quarter share size. When the stock reaches the level of B, the high of day, it typically shows some resistance. That’s the moment where you need to be very sharp and keep your fingers at the buttons. It’s possible that B is not broken. If I see this and I see that selling of has started, I step out immediately having a profit.
If B is broken, I add half a share size doubling my position.
How to exit in a classic ABCD pattern?
There are two scenarios: or you have a target D in mind or not.
If I have a target D in mind, I set my stop loss each time just below the previous 5 minute low and wait for the price to reach level D. If level D is hit, I immediately sell half of my share size. If then the price climbs further I hold the other half but I’m ready to exit immediately if the slightest decrease would start.
In the other scenario, when I don’t have a level D in mind, I sell half of my share size when I see that the movement upwards is slowing down or showing some resistance at a certain level. Each time I see this, I sell half of my open position taking profit of the table. Also here I close my position entirely when the slightest decrease is being made. Also in this scenario I set my stop loss each time just below the previous 5 minute low for my entire open position.