February 2006

When AB Doesn't Equal CD – Part One

If you are familiar with harmonic trading you are likely well acquainted with parallel moves. (Bulkowski refers to them as measured moves). My mentor, Larry Pesavento, has popularized the expression AB equals CD. All of these descriptions refer to the following pattern. The chart actually shows two of these patterns. The first is labeled in upper case blue and the second in lower case red:

The pattern will be found in every Gartley 222 pattern which is essentially two parallel moves attempting to make a new high or low. The pattern frequently completes at a point that Elliott wave technicians would label as a larger degree wave 2 or 4. The internal structure of the pattern can also be labeled as an ABC correction with each letter referring to a specific wave in the pattern or correction:

Robert Miner refers to one aspect of this pattern using the expression " alternate price projection". AB equals CD when the A wave is projected from the end of wave B and the market reverses direction near the end of this projection. This would be a 100% alternate price projection or APP. The challenge for many traders is dealing with those situations where a correction is anticipated but the market either moves moves well beyond the 100% APP or reverses before the 100% APP. In the following chart, we have shown the exact 100% APP on the previous charts:

As you can see AB does not always equal CD. Can we anticipate and profit from these situations? The answer is yes but this requires some additional analysis of wave structure, angles, gaps and end of wave projections or convergence zones as well as the use of an oscillator. In future issues of Trade Tips we will explore how the trader can use these additional tools to successfully anticipate and trade patterns where AB does not equal CD.

Real-Time Trader's Workshop
Join Alan Farley and John Person and learn practical stock and futures trading strategies in REAL-TIME. On Saturday May 20th through Tuesday May 23rd, 2006 in Tucson, Arizona a limited number of serious traders will participate in a unique and structured program for futures and stock trading. This is a once a year event - take your trading to the next level! Learn more.

Alan Farley Workshop Web Site
John Person

Real World Trading and a Structured Learning Approach

This intensive workshop features two top professional traders, with more than 40 years of combined practical experience! We have met to organize the entire four days in a structured approach to provide you the best learning experience possible including two days of real-time stock and futures trading.

Strictly limited to 40 traders - Registration closes April 27, 2006
Workshop fee - $2,695.00 - Click here for details

©2003-2006 Traders Workshop - All rights reserved

Harmonic Edge Services

We visually scan over 1400 charts a week looking for the best high profit "swing trade" patterns using volume, volatility and liquidity criteria. Setups are filtered with technical and fundamental analysis to bring you the very best high probability harmonic trading setups. The swing trade model has  returned more than 40% per annum (using margin) over a five year period. Each of our trades has well defined entry points, trailing stops and targets. The amount at risk is always small and clearly defined.

We include scans and setups of the IBD 100.


We provide a real time trading pit with in depth coverage of the S&P 500 Emini contract. Patterns and setups are posted in advance with ongoing commentary and education in harmonic trading.

We track the following futures contracts on the daily and weekly charts: U.S. Long Bond, U.S. 10 Year Note, Euro, Yen, Corn, Live Cattle, Soybeans, Wheat, Crude Oil, Heating Oil, Gold, Silver, XAU.

Consulting - Coaching - Tutoring

If you are interested in additional assistance, we offer consultation, coaching and tutoring as well as assistance in evaluating or constructing a trading plan - learn more

We hope you enjoy receiving Trade Tips and related promotional and educational materials. If for some reason you would prefer not to receive this information, please follow the instructions to unsubscribe.

Copyright©2006 La Canada Capital Management, LLC - All Rights Reserved
Terms of Use