The ABCD pattern is one of the most fundamental and straightforward trading patterns available to anyone, especially the newcomers in crypto trading. In fact, the rule it comprises is trading in a nutshell. Traders have been using it for quite some time now, which also helps them understand market psychology. The ABCD pattern is well-accepted among crypto traders, so if you want to join the trend, understand how this pattern works.
What is the ABCD Pattern?
The letters ABC and D stand for the points in a crypto chart. The A is the starting point, followed by B, C, and D. Remember that ABCD patterns begin with a significant upward move. Crypto buyers are aggressively buying at the starting point or point A, which causes the price to rise sharply to the second point or point B. This trade sequence is tempting because you think it is the best time to buy crypto. Since the price increase is abrupt, traders believe they can profit more from it.
But remember, you must not chase this trade and carelessly enter because the price from A to B is too steep and rapid. We know that in crypto charts, the price that sharply increases tends to drop rapidly as well. If you want to know more about this concept, read the explanation of Investopedia about it. Furthermore, you cannot tell where to place stop loss in this trade sequence. Never enter a trade without understanding your stop, as most seasoned traders say. And this idea is unquestionable, especially for day traders.
Traders who purchased at point A instantly begin selling and taking profits at point B. As a result of this occurrence, the price will drop. Some of you may assume that this moment is the perfect time to invest in cryptocurrency. You cannot just do that, though, because the price is still dropping. Before entering the trade, you must wait for the price to flatten or subside. This is when point C comes into the picture. Point C signifies that the asset has already found possible support at this time.
How Do Traders Interpret the ABCD Pattern?
Plan for your trade and set up a stop loss and profit-taking point. In an ABCD pattern, most traders do not purchase at point A right away. They do not get excited when the price of a cryptocurrency rises, but instead, they will look into the source by watching for news, announcements, events, or any other stimulus that might cause a price hike. Experienced traders do not engage in this trade sequence right away because they observe first; this is a trait that you can see in expert crypto traders. Novice traders seek professional advice from them through platforms like Kucoin and Immediate Edge.
Once traders see that the crypto price is not drastically declining after reaching point B, they will get interested in it. Since most traders already know this pattern, they will wait for the price to stabilize. They know that when the price becomes steady or not fluctuating, it is a sign that the price has the potential to increase again. They interpret stabilized price movement as potential support. At this point, traders will start entering the trade, which will cause the price to skyrocket. The pattern is straightforward.
ABCD Pattern Pro Tips
Point C is always above point A, usually in the middle or around Point B; hence, traders should set stop-loss below point C to prevent losing a lot of money if the ABCD pattern fails. Because no pattern is flawless, you must constantly monitor the price movement.
The ABCD pattern gets widely employed in forex, equities, and other markets, including cryptocurrencies. Always make sure to use other indicators to support your presumption. This pattern is very profitable if you can execute it properly.
The ABCD pattern, like what they say, is as easy as 1234. It is the foundation of the price movement principle that everyone must know before starting to trade. Supplemental information like what technical indicators offer could also help a trader form a solid conclusion or presumption about the price movement.
David is a crypto enthusiast and an expert in personal finance. He has created numerous publications for different platforms. He loves to explore new things, and that’s how he discovered blockchain in the first place.