Learn to Use Technical Symmetry to Forecast Market Reversals

Applying Simple Pattern Recognition on the RSI

The ABCD pattern is a well known configuration with many variations. This article presents the simple version and applies it on the RSI in order to generate trading signals.

The Simplified ABCD Pattern and the RSI

An ABCD formation is a 4-point structure where the last point signals a reversal. Typically the ABCD refers to the fact that the AB leg is equal to the CD leg, implying symmetry.

The theoretical bullish ABCD pattern looks like this:

The theoretical bearish ABCD pattern looks like this:

Let’s discuss the other part of the pattern recognition system we’re creating.

The Relative Strength Index (RSI) is a popular technical indicator used in trading to measure the strength of a financial instrument’s price action. The RSI is a momentum oscillator that compares the size of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset.

The RSI is calculated using a formula that takes into account the average gains and losses over a specified time period (usually 14 or 21 periods). The RSI ranges from 0 to 100, with…