by TFK3: ABC pattern is an amazing reversal formation that can have tremendous entry accuracy. However looking for a complete trend reversal is a little foolish. The better bet is to look for this formation at the end of a correction and use it as a continuation pattern for major trend. I will show you one of the options on how to do it.
This forex strategy also uses alligator forex indicator. Alligator does a good job in telling us what we need to know – where is the main trend headed. Additionally, fractals may be used by less experienced traders, to help them recognize that pattern. Strategy offers favorable risk reward ratio and build in solution for stop and target profit placement.
Used forex indicators
Alligator (130,80,50). By ten folding the default indicators setting we get a good grip on major trend direction, which is exactly what we need.
Fractals: fractals will be used as a mere visualization tool. Experienced trader may choose not to clutter the charts with them.
Apply both of the indicators in any major currency pair. This strategy works better in timeframes above 15 min.
Forex strategy rules
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SELL
First of all. Alligator indicator must be signalizing downtrend. All lines are lined according to downtrend (slowest at the top, fastest at the bottom). Then we can start looking for an ABC formation and downward signal.
ABC pattern:
Swing up surpassing the previous high (A point), followed by swing down that will create new low (B). Price swings upwards not reaching previous high, but it will create a new high (C).
Once the formation is completed we place pending sell order at the price marked by B point.
Stop loss is placed above the C point marked price.
Take profit equals the vertical distance (in pips) between A and B swing peaks.
BUY
Alligator indicator must be signalizing uptrend. All lines are lined according to uptrend (slowest at the bottom, fastest at the top). Then we can start looking for an ABC formation and upwards (buy) signal.
ABC patterns at the bottom:
Swing down surpassing the previous low (A point), followed by swing up that will create new high (B). Price swings downwards not reaching previous low, but it will create a new low (C).
Once the formation is completed, we place pending buy order at the price marked by B point.
Stop loss is placed below the C point marked price.
Take profit equals the vertical distance (in pips) between A and B swing peaks.
Notes: Strategy reflects fundamental nature of struggle between bulls and bears for price dominance. Therefore can be applied across all freely traded instruments.
