Trading ABC Patterns
 , July 02, 2006
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Suri Duddella is the author of a new book Trade Chart Patterns Like The Pros. Suri Duddella is a Private Trader and have been trading futures and equities markets full-time for the past 12+ years. Suri can be reached at suriNotes@gmail.com and his website is: http://www.suriNotes.com
The basic pattern 'ABC' wave is first described in a book by H.M. Gartley's
'Profits in the Stock Market' (1935). This pattern signals a (T)rend and a (R)etracement
and resumption of (T)rend, like a lightning bolt pattern. This pattern is called 'ABC Wave'
or '1-2-3 pattern' in technical analysis world.
ABC Waves forecasts market turning points and targets for traders. ABC Waves pinpoint
important pivots with highs/lows and key trend zones for correction waves.
The key points in ABC wave are detecting or correctly finding 'A', 'B', 'C' pivot points in a chart.
These key Pivots are searched for various Pivot Strength levels and used for its
correction waves. Once 'A', 'B', 'C' points are determined, a fiblevels algorithm is applied to
determine the confluence level of 'D'. This area is called 'Potential Reversal Zones' (PRZ).
The area where Pivot 'C' is usually measured as Fib Retracement percentage (38.2% to 61.8%) of 'AB' leg.
The projection from 'C' is measured also part of fib-ratios of 'AB' and 'BC' legs. Some traders use the confluence
of these ratio levels as the key areas for profit taking.
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Auto ABC Tool in Tradestation
In Tradestation (8.+), there is a 3-point Fib Extension tool which can be used manually to place three points on
a chart to produce the potential areas of reversal. But this demands user to pick the right 'A', 'B', 'C' pivot points.
This manual selection of pivots may work many times, but could be tedious and error-prone as the selection of
pivot points becomes subjective.
An Auto-ABC indicator will give user the power of detecting 'A', 'B', 'C' pivots automatically and drawing the
fib-retracement levels in real-time. It has both Bullish and Bearish wave configurations to detect the ABC waves.
Users have the ability to pick the fib retracement percentage range (to detect 'C' pivot) and user defined fib-extension levels (of AB, BC legs).
The Auto ABC tool is customizable for retracement levels, various fib extension levels, linestyles and colors.
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ABC Bullish Wave Detection
ABC Wave is detected in @YM for user selected fib-retracement range of 38% to 62%. An optional Swing Strength search resulted from pivotstrength of 3 to Pivotstrength of 10 resulted in a ABC Bullish wave. User selected Fib Extension levels are plotted.
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ABC Bearish Wave Detection
ABC Bearish Wave is detected in @ER2 for user selected fib-retracement range of 38% to 62%. An optional Swing Strength search resulted from pivotstrength of 3 to Pivotstrength of 10 resulted in a ABC Bearish wave. User selected Fib Extension levels are plotted.
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