Lesson 7 | ABCD and 1.382: Every Trend Starts as a Seedling

In one sentence

A trend starts with up-pullback-up or down-bounce-down, the seedling. The seedling only counts once D reaches 1.382 of the BC leg.

An analogy

To grow a tree, you pick a seedling first. A good seedling is likely to become a big tree; a poor one won't. In the market the seedling is this first structure, and 1.382 is the ruler that tells you whether the seedling is any good.

What ABCD is

Every timeframe, monthly, daily or one-minute, has its own trend, and every trend begins with an N shape.

How to measure 1.382

You measure the B to C leg and check whether D reaches its 1.382.

Uptrend: 1.382 level = C + 1.382 × (B − C)

Downtrend: 1.382 level = C − 1.382 × (C − B)

A round-number example: gold rises from A to B = 4,100 and pulls back to C = 4,000. BC is 100 dollars. The 1.382 level is 4,000 + 138.2 = 4,138.2. If D touches 4,138.2, the seedling counts.

On a platform you don't need to calculate: drag the Fibonacci tool from B to C and read the 1.382 level.

"A touch counts"

D only needs to touch 1.382. Whether price holds above it is a separate question. A wick touching it counts too.

What a touch means

1. The seedling is confirmed; price is more likely to keep going in this direction.
2. C's support (resistance in a downtrend) is confirmed, so C becomes a valid point (Lesson 9).
3. The proportion of AB that C retraced becomes the basis for the rhythm line later (Lesson 11).

The order for finding ABCD

1. Wait for A and B.
2. Wait for the pullback to make C.
3. Once D appears, drag the Fibonacci tool from B to C and see whether D touched 1.382.

Until price has made ABCD, you can't call the seedling good; you can only wait. Many people see a break and assume a fall. Wait until down-bounce-down is complete and 1.382 is reached; only then does it count.

The most common mistakes

1. Measuring the wrong leg. It's BC, not AB.
2. Deciding before D has formed.
3. Confusing "touch" with "hold above". A touch counts; holding is a later question.

Explain it in your own words

1. What are the four points of up-pullback-up?
2. With B = 4,100 and C = 4,000, where is 1.382?
3. Once D touches 1.382, what changes about C?

Practice

On the gold daily chart find three up-pullback-up and three down-bounce-down structures. Drag the Fibonacci tool from B to C on each, mark 1.382 and note whether D touched it.

Previous: Lesson 6 | Two drawing tools: Fibonacci and percentage lines　Next: Lesson 8 | 1.382 tells strength

This course teaches a method using past price action as examples. It does not forecast prices, recommend any broker or give investment advice.