Example of ABCD Pattern and abcd pattern.
To summarize my trading strategy for the ABCD Pattern:
1. When I observe with my scanner or I’m advised by someone in our chatroom that a stock
is surging up from point A and reaching a big new high for the day (point B), I wait to see
if the price makes a support higher than point A. I call this point C. I do not jump into the
trade right away.
2. I watch the stock during its consolidation period. I choose my share size and stop and exit
strategy.
3. When I see that the price is holding support at level C, I enter the trade close to the price of
point C in anticipation of moving forward to point D or higher.
4. My stop is the loss of point C. If the price goes lower than point C, I sell and accept the
loss. Therefore, it is important to buy the stock close to point C to minimize the loss. Some
traders wait and buy only at point D to make sure that the ABCD Pattern is really working.
In my opinion that is reducing your reward and increasing your risk.
5. If the price moves higher, I sell half of my position at point D, and bring my stop higher to
my entry point (break-even).
6. I sell the remaining position as soon as my target hits or I feel that the price is losing steam
or that the sellers are acquiring control of the price action.
Bull Flag Momentum
In day trading, Bull Flag is a momentum fast execution strategy that usually works great on low
float stocks (Chapter 4). I believe Bull Flag is a scalping strategy because these flags won’t last
long and you must scalp the trade - get in quickly, take your profit, and then get out.
Example of Bull Flag formation with one consolidation period.
This pattern is named Bull Flag because it resembles a flag on a pole. In Bull Flag, you have
several large candles going up (like a pole), and you also have a series of small candles moving
sideways (like a flag), or, as we day traders say, “consolidating”. Consolidation means that the
traders who bought stocks at a lower price are now selling and taking their profits. Although
that is happening, the price does not decrease sharply because buyers are still entering into
trades and the sellers are not yet in control of the price. Many traders will miss purchasing the
stock before the Bull Flag starts. It is risky to buy stock when the price is increasing. That’s
called “
chasing the stock
”. Professional traders aim to enter the trade during quiet times and
take their profits during wild times. That, of course, is the total opposite of how amateurs trade.
They jump in or out when stocks begin to run, but grow bored and lose interest when the prices
are, shall I say, sleepy.
Chasing the stocks is an account killer for beginners. You must wait until the stock finds its high
point, and then wait for the consolidation. As soon as the price breaks up in the consolidation
area, you can begin purchasing stocks.
Usually a Bull Flag will show several consolidation periods. I enter in only the first and second
consolidation periods. Third and higher consolidation periods are risky because the price has
probably been very extended in a way that indicates that the buyers will soon be losing their
control. Let’s study an example of a Bull Flag of RIGL on August 30, 2016.
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