Yesterday, our support team received the following email from Danny in Niagara Falls, Canada. He had some questions for John Paul regarding the ABC method. See Danny’s email and John Paul’s response below.
Thanks for the kind words and glad you are enjoying the videos. I’ll try to put some new ones out soon. See my explanation and chart examples from yesterday.
The ABC Method can be very helpful in both finding entry opportunities and determining whether there’s a trend. In the charts below, US/Eastern time (currently EDT or UTC-4) is used. Remember to adjust if your time zone is different.
With the ABC Method, think about splitting the trading day into three periods. The trading section can begin at the U.S. market open at 9:30 a.m. US/Eastern or the London market open at 3:00 a.m. US/Eastern.
We’ll start with one vertical line at 9:30 US/Eastern followed by another vertical line at 12:00 p.m. US/Eastern. This is a 2.5 hour period. You can consider this a range, as it contains a highest high and lowest low of all data (candles) within 9:30 a.m. to 12:00 p.m. This is the A period.
If within the next (B) period, two 5-min candles close above or below the range of the A period, you can go either Long or Short on the close of the second candle. This must occur within the first 1.5 hours (by 1:30 p.m. US/Eastern) of the B period to be valid. Trending days usually break the A period.
The A Period
The B period begins with the same line you drew at 12:00 p.m. US/Eastern (the end of the A session). Remember to add a new line at 2:30 p.m. US/Eastern to conclude the B period. Yes, the B period is also 2.5 hours in duration.
The B Period
The same relationship occurs when comparing period B and period C for potential late-day rallies and breakouts. The C period needs to show two consecutive 5-min closing candles above or below the B range within the first hour of period C.
The C Period
The same relationship occurs during the London session A period, starting at 3:00 a.m. US/Eastern through 5:30 a.m. US/Eastern (2.5 hours). Then the B period occurs from 5:30 a.m. US/Eastern through 8:00 a.m. US/Eastern (2.5 hours). Then the C period occurs from 8:00 a.m. US/Eastern through 9:30 a.m. US/Eastern (only 1.5 hours).
The London Trading Session
Hopefully this clears up your understanding of the ABC method and how it can work with European markets. Remember that switching your cursor to a crosshair will help you easily identify the times on the time axis. Your profit target and stop loss should be relative to the volatility.
The best way to learn more about the ABC and all of our other trading methods is with our eight-week coaching program called Mentorship. Click here to find out more.