Bullish ABC Trading Patterns
A Bullish ABC Trading Pattern forms when the market is in an upward trend. This pattern is an example of symmetry in trading.
Price will move up from point A, to point B which is a higher high. B becomes a pivot as price reverses to point C.
The leg from A to B is a significant move, and the high of B creates a new resistance level.
The pivot point C needs to form a higher low than A for the ABC pattern to be valid. The higher low implies a general trend to the upside.
For the pattern to complete, price needs to reverse off C. Some traders choose to enter the trade when there is confirmation of that reversal, others will wait for resistance at point B to break.
This trade doesn’t complete every time, as no pattern does. However, if price is able to reverse and trend up, the move tends to be of a similar distance as the move from A to B
How to Trade Bullish ABC Trading Patterns
To trade a Bullish ABC pattern, wait for confirmation of a reversal at point C. Once you have a close of the first green candle reversing off C you have confirmation of the reversal.
You can enter the trade at this point and place your stop loss just below C as this is the support level.
Don’t enter the trade if there are any unrelated resistance levels, wait for those to be broken.
We know that the next major resistance level is point B in the pattern, you can choose this as your target or first of 2 targets.
The uptrend from C is often roughly the same size as the trend from A to B. You can use this information to find a larger target or a secondary target.
In the example below I chose to wait for some resistance (on the left) to clear before I entered. I miss part of the move but that’s ok, I want to make sure the pattern has a chance to complete.
I have decided to make the resistance at pivot B as my first target. I have copied the leg from A to B and used it to measure my second target.
When price reaches Target 1 (T1) I reduce my position by half and move my stop halfway to my T1 level. Note if I put my stop all the way up to T1 I would get stopped out and miss T2.
Price does eventually trend higher than the length of AB and I reach Target 2 and take profit on the remaining position.
Real Life Example of a Bullish ABC Pattern