Mikula Forecasting Company

Mikula Forecasting Company: Strategy #12: AB=CD Pattern

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Written by: Patrick Mikula CTA
Copyright (c)2003-06 by Patrick Mikula All Rights Reserved. (Please to not copy or foreword this article).

Mikula Forecasting Company
P.O. Box 152672
Austin, TX 78715-2672
USA
www.MikulaForecasting.com
support@MikulaForecasting.com
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This article will discuss making a swing projection using the AB=CD method. Some of the best forecasting wisdom you will ever read is simply that the best predictor of the near future is the recent past. This method uses three pivot points to create two swings. The pivots are labeled A, B and C. They create the two swings AB and BC. These can be seen on the first chart below which shows the stock Office Depot Inc. symbol ODP. The swings AB represent the recent past and the projected swing CD represents the near future. The ideas behind this methods is that the end of the swing CD can be predicted using the previous two swings. The size of the CD projection is the same size as the AB swing. This is why the method is referred to as AB=CD. The projection of CD by itself is not enough, we also want to see at least one Fibonacci relationship between the projected swing and the previous swings. Along the projected CD swing line there are hash marks identifying the Fibonacci retracement levels 0.382, 0.618 and 0.786. Ideally we want to see the CD swing end near one of the Fibonacci retracement levels. On the ODP chart the CD swing ends near the 0.786 retracement level. This makes this CD projection a viable candidate to watch for a reversal as the swing nears the end of CD.



The next chart shows the July 2004 Soybean Meal contract. Here again we have selected pivots A, B and C and drawn the projection swing CD. In addition to the Fibonacci relationships between the swings and the size of swing CD you must also consider the slope of the CD projection. On the chart below notice that the price bars have moved up along the CD projection angle at the same slope as the angle. When the market repeats the same slope in AB and CD it is a good indication that the market is repeating a similar swing to AB.



The chart below shows the DJIA 30. We have selected the pivots A, B and C and drawn the projection CD. On this chart the CD projection ends almost exactly on the Fibonacci 0.786 retracement and the market is at this price right now. This is a good candidate to watch for a reversal.




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To see another example of this method read the version of this article on the MarketWarrior owners page.