Perfect ABCD Pullback Example in Crude Oil

May 21, 2015: 1:13 PM CST

When we last left Crude Oil in our updates, it was trading down into a known support level and we were planning for a support-bounce or else support-break outcome that would set up our next trade.

With Crude Oil indeed bouncing off our support level, let’s step inside the price action to study a perfect example of short-term trade set-ups including the AB=CD “Flag” Style Pattern

Take a moment to review Tuesday’s Crude Oil update as price traded into the target level near \$58.00.

Here’s a quick quote which sets the stage for today’s educational lesson:

Focus on the \$58.00 level along with the \$57.00 lower support confluence which is the April price low and the 38.2% Fibonacci Retracement as drawn.

Keep these simple levels in mind as you plan and trade Crude Oil through the remainder of the week.

Take a look at the chart above – which is an intraday perspective – as Oil tested our key pivot level.

I wanted to highlight an educational lesson which combines two timeframes and a price pattern.

First, Crude Oil was trading down into a key support level as identified.

Second, Crude Oil – at the time it was testing the \$58.00 level – completed a less-familiar price pattern known as an AB=CD Pattern.

It’s like a Flag and can be traded like a Bear Flag (in this example), but the AB=CD Pattern takes the flag pattern a step further by permitting a Reversal Trade at the target.

Think of the pattern like line segments where the AB line segment – in this case \$3.20 – can be subtracted and projected down from a “Flag” Retracement.

The “CD” line segment targeted the \$58.00 level which was our higher frame target.

Finally, one last educational example of this neat set-up preceding the reversal was a lengthy positive momentum divergence into this level.

To sum it up, we had a…

• Higher Timeframe Pivot Level
• Lower Timeframe AB=CD (like a flag) Price Pattern Target
• Lower Timeframe Visual Positive Divergence

It wasn’t necessary to identify all of these factors but as we learn lessons from our trades and price action, moments like this can serve as great educational references we can study and prepare to trade in the future when similar events happen.

Corey Rosenbloom, CMT