ABCD Pattern: A Beginners Day Trading Strategy #daytrading #stockmarket transcript

all right everyone so the topic of today's episode is the abcd pattern this is a multi-candlestick pattern and so this is another episode in the multi-part series on technical analysis and candlestick charts and how to read stock charts for day trading so let's jump right in and look at the abcd pattern in all its glory there it is this is a picture perfect drawing of an abcd pattern now this is uh going to remind some of you of a bull flag pattern and in fact an abcd pattern is formed initially by a bull flag that does not resolve by going all the way through the high of day so let me show you here on the whiteboard so a bull flag begins of course with one sometimes two or three green candles in a row moving up and then we have a little bit of pullback now a typical bull flag will pull back for two or maybe three candles before beginning to move back up to the high however in an abcd pattern the stock does not break through high of day it cannot break through high of day or it's no longer an abcd pattern it can come back up right too high of day but it cannot break through that level so an abcd pattern is an example of a chart that initially is a bull flag and in fact you can even trade it as a bull flag the only scenario that you might not take that first candle to make a new high is if you thought it was too extended off the nine moving average or if perhaps you had a higher volume red candle or you had a red doji on this one or a shooting star if you had higher volume on this red candle you know lighter volume on the green candles and then higher volume on the red candle that might be a warning sign that would make you say no i don't think i'm going to buy this but other times they're simply just a totally decent bull flag with light volume everything looks good and it just for whatever reason when it gets volume coming back in here on this green candle it doesn't break through the high maybe there's a hidden seller up here at you know 750 or whatever it is and there's a big wall it's 30 000 shares whatever and it cannot break through that level so regardless of the reason this is the beginning of an abcd pattern what then happens is another essentially bull flag formation but what's very important here is that in an abcd pad and the pullback cannot come below this level here so this right here we go a b c d okay so this is gonna pull back down here to point c now as it pulls back to point c as i said point c cannot be lower than point a they can double bottom and sometimes they will sometimes they'll pull back they'll double bottom right at that level and then come back up so that's totally fine and there's definitely a strategy around trading the double bottom here of being a buyer right off of this level with your stop right here especially when you've got the moving average support but again that's getting into strategy so let's just focus on the pattern the first candle to make a new high out of this pattern you can buy however most traders will wait to buy the break through point b so that's leg d here so a b c d so on leg d as it breaks through the high price here which would have been in this example 750 that's where you're buying and sure maybe you get in at you know 7 48 if you start seeing volume really coming up here as it starts to break out that's fine but generally you're in pretty close to that level unless perhaps you already have profit from the abc or from the first pullback the bull flag which gave you the confidence to take the risk on the double bottom now sometimes traders will say russ would you have lost money on this bull flag and the answer should be no if you had a correct entry down here the first candle to make a new high you could have easily taken profit as it came up to this level the only way you would have lost is if you scaled in aggressively right underneath this level and then it failed so as long as you had a good entry and you didn't over leverage yourself too much right into the high day break this should have still been a winning trade which then gives you the opportunity to come back in for the second attempt right here and oftentimes this is a very strong pattern because this period of consolidation gives many traders the opportunity to see the opportunity and then take the trade right sometimes patterns that are really really short traders don't have a chance to see it happening because you have to be either watching it like in real time or you just miss the whole thing so an abcd pattern especially if this is a five minute chart you know this is going to take place over the course of 30 40 minutes so there's a lot of time for you know traders collectively to be spreading the word of hey there's an ebcd pattern forming on this stock it looks really good let's you know take the trade or whatever if it happens on a one minute time frame not as long but that still works now let's switch back over to the main screen here and let's talk about the the characteristics of the abcd pattern so typically begins with three plus candles moving up and then we have a pullback two or more candles pull back towards the nine moving average first candle makes a new high but does not break through the high of day which is point two or point b you then pull back again but not lower than the original point a and then it's on the next attempt where you expect the breakout this consolidation should occur above the nine moving average which i drew here is this blue line on the chart whether it's a five minute or one minute you still want to see that consolidation above that moving average so the entry point is generally speaking the most obvious level which is the break through the high and most traders are going to get in just a little under that level to anticipate that break now one of the things that's interesting is that a one minute abcd pattern in this example here on the whiteboard this is one two three four five six seven eight nine ten eleven twelve thirteen candles so that means this pattern if we flipped this to a five minute chart and this was our um from my last episode on both flags if we switch to a five minute chart and we drew this same exact pattern on the five minute chart it's going to start with a green candle and then the next candle which is the pullback candle was red right and then the next candle let's see it comes back up is green but it does not break through the high so it's kind of like this and again it could be like just a little different this this candle could have gone a little higher and then this is sort of the beginning of the pullback here but approximately it's like this and then you've got another candle that pulls back but it doesn't go lower and then that's when you start to get that breakout so this can end up forming a bull flag on the five minute chart and that's called multi time frame alignment i don't have to write the whole thing multi-time frame alignment so this isn't a perfect you know copy of what this would look like on a five minute but it is fairly close you have the move up you have the pull back sort of the false breakout the second dip and then the break so now let's look at a couple of examples of actual charts where you can see very clearly this multi-time frame alignment so let's look here first at the five-minute chart so don't even look at the other side just look at the five-minute chart first so you can see the stock squeezed higher it then pulled back and then the first five-minute candle made a new high and it broke through 550 and went up over six dollars for a 10 return right that's a totally decent five-minute pullback it's a bull flag right at the nine moving average right here it's fine volume profile is good it's it's not fantastic because the high a day actually was on slightly declining volume but it's not terrible so now let's look at the one minute so the one minute squeezes up initially on this sort of long leg higher and then it pulls back it pops up but doesn't go back through the high right it pops up and then stops and then comes back down and in this example perfect double bottom double bottom support we then break through point two right here on this leg and that's where we break through the highs and so the entry on this in this example is a little bit below high of day it says we break 0.2 so in the drawing that i did right here the apex was at the very top however it's totally possible that this stock could have been more like this and that this is the pullback oops sorry my marker's getting a little dry here so you could have this kind of scenario where it's more of this wedge so you're breaking out here in your entry here is still well below your high a day that's very possible we see that all the time on an abcd pattern and that's more what we see in this particular example right here reminder as always my results are not typical and trading is risky i press that button by accident all right so we've got the high here that's the entry right there all right now let's look at a another example so this is a little earlier in the day here you have a five minute candle that's squeezed up and ends up forming a shooting star candle on the five minute it drops down right and so that was formed by this top this sell-off and then right there it pops up just for a second it pulls back and right as it breaks through that level of 0.2 you get that squeeze back through the high now this is interesting because the five minute chart the red candle is on lighter volume it is a shooting star but it's on lighter volume and when you look at the one minute the one minute's not that bad so this ends up by using both the one minute and the five minute it gives us a little bit more confidence to take this trade this is a five minute abcd pattern which is uh kind of an interesting pattern here a pop-up a pullback a pop higher a dip and then a break through the level then it retests the previous resistance level that provides support and then we squeeze up to the high then this is the first pullback following the breakout and then we move again higher actually that was the second pullback we have the first pullback which is right here and then this is the second pullback and then it goes higher so a little bit of an interesting pattern on that one this is another abcd pattern where you squeeze up you dip down you pop up and this is typically where you would expect it to go back through the high but note here high volume on this red candle which is probably why traders hesitated to buy it in this area which would have needed to happen for it to go through the high a day so it pulls back but it doesn't sell off that much it holds this level and then traders come back in and now on the second attempt they're able to break it through the high a day and off it goes from 280 all the way to 380 which is a really nice breakout this is another one the stock squeezes from 110 to 170 pulls back you do have a red doji so when it pops up it's not quite strong enough to go back through the highs it pulls back for a moment and this becomes a micro pullback right there so again by the way those who haven't already downloaded my micro pullback pdf if you go down in the description you will see my micro pullback strategy pdf that is my strategy for how i trade these micro pullbacks now micro pullbacks can occur in the context of an abcd pattern uh bull flag it's it's more of the very short micro pullback that occurs as a stock is just beginning to break out and pull away this is the opportunity that i find to buy a really strong stock and again if we go back just for a moment and think about why these patterns work so well they work well because traders are watching them traders have their eyes on these patterns so these only work when you're trading the right stocks to trade that means high relative volume typically news already a leading gainer on the day that way it's going to be on the news traders are watching this they're going to see it it should be a stock that's moving quickly if it's not obvious the patterns aren't going to resolve as well these patterns are very to me very clear buy and sell signals that i see right on the chart but if you're looking at a chart and no one else is looking at it then those buy and sell signals it's a traffic light that's blinking in the center of town and it's two in the morning it's not doing anything it's not really serving any purpose but during the time of day with congestion high volume that's when these signals are really respected okay so this is a nice little abcd pattern and then we've got um another one right here where you can see this squeeze higher on the five minute a micro pullback false breakout it drops down and note of course that this was very extended at that pullback off of the nine moving average it then comes down to that level bounces off the volume weight average price and the nine pops up pulls back one more time and then makes a second attempt through the highs even though in this example it didn't really squeeze and go parabolic like all the way up to the high the entry from right here to right here still provides a nice five six percent winner that's not a bad trade at all it's not a home run but ultimately success as a trader is based on hitting a lot of base hits not hitting the occasional home run all right so now that you know a little bit more about the bull flag and the flat top breakout you can continue on to the next episode in this multi-part series on technical analysis and candlestick charts the next episode's right there i hope you guys enjoy it i hope you've been enjoying these episodes and if you have as always i hope you hit the thumbs up and subscribe to the channel