ABC is taken from Elliott wave terminology for a three-wave countertrend price movement. Wave A is the first price wave against the trend of the market. So, wave B is a corrective wave to Wave A. And, wave C is the final price move to complete the countertrend price move.
Elliott wave followers study A and C waves for price ratios based on numbers from the Fibonacci series.
What does it mean in Forex trading
In Forex trading ABC refers to a strategy, a simple but highly effective price-based pattern that can be used for both forex trading and analysis purposes. It takes advantage of the natural tendency for the price of a currency pair to move in one direction, making several swings, before reversing and swinging in the other direction. Therefore, this pattern can be used to trade trends and reversals. This pattern occurs on all times frames and is utilized in both up and down markets. It can also be applied to the stock and futures markets.
Connection with Fibonacci
They are mostly used as Fibonacci ABC Pattern. Many traders have heard about Fibonacci levels. Lot of them have tried to use them. Like many technical indicators that work well in theory. Fibonacci levels pose a challenge when you’re actually trying to make money with them. Fibonacci levels are derived from a number series that Italian mathematician Leonardo Pisano Bogollo—also known as Fibonacci—introduced to the West in the 13th century. The sequence starts like this:
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89…
Can you see the pattern? Each new number is the sum of the two numbers before it. As the sequence progresses, each number is approximately 61.8 percents of the next number, approximately 38.2 percents of the following number, and approximately 23.6 percents of the next number after that. Subtract 23.6 from 100, and the result is 76.4.
These are Fibonacci retracement levels: 76.4, 61.8, 38.2, and 23.6.
Well, famous Nikola Tesla is known for the quote
“If you only knew the magnificence of the 3, 6 and 9, then you would have the key to the universe.”
It turns out that when the device is examined, the digital roots of the numbers in positions 3, 6, 9, and 12 constantly repeat the same sequence 3, 6, 9! Is this what Tesla was referring too? The self-organization of numbers and their digital roots? It’s hard to say, but If we could get traders all over the globe to use this technique, it could give them some benefits. (See also: Fibonacci retracement)