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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Bulkowski's Simple ABC Correction

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Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 10/22/2014
16,461 -153.49 -0.9%
8,312 -174.20 -2.1%
576 3.51 0.6%
4,383 -36.63 -0.8%
1,927 -14.17 -0.7%
YTD
-0.7%
12.3%
17.4%
4.9%
4.3%
Tom's Targets    Overview: 10/10/2014
16,800 or 15,800 by 11/01/2014
8,700 or 8,000 by 11/01/2014
600 or 560 by 11/15/2014
4,600 or 4,200 by 11/15/2014
1,950 or 1,800 by 11/01/2014

Written by and copyright © 2005-2013 by Thomas N. Bulkowski. All rights reserved.

The simple ABC correction is a measured move down chart pattern nested inside a measured move up. If measured moves are unfamiliar, then click the associated link for more information.

Shows a Simple ABC correction

A Simple ABC Correction

Simple ABC Correction Identification Guidelines

CharacteristicDiscussion
NestedThe simple ABC correction is a measured move down chart pattern nested inside a measured move up.
ChartSee the above chart. Point D must be below point C, meaning that the measured move down (MMD: EABC) must not correct too far. MMDs that correct too far fail more often.
Corrective phaseThe corrective phase of the large MMU is an MMD, like the ABC pattern shown in the above chart. Only one MMD should be present with two straight-line runs, EA and BC. Discard patterns with pronounced turning points within those two down legs.
PointsWithin the MMD, points A, B, and C are below E. Be especially careful that B not be above E. Point C starts a major price up swing.

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Simple ABC Correction Trading Tips

Reference the figure on the right.

Trading TacticExplanationShows a Simple ABC correction
TrendlineDraw a trendline from E to B and extend it downward. When price closes above the trendline, buy.
SwingersFor aggressive traders, draw a trendline down from B along the tops and buy when price closes above it. A close above the intraday high at A (blue trendline) also works as a buy signal.
BuyFor conservative investors, a close above B or even E is the buy signal.
ReverseBe prepared for price to reverse at the price of E – 36% do and prices drop, confirming a double top.

 

Simple ABC Correction Example

Simple ABC correction chart pattern example

The above figure shows an example of a simple ABC correction chart pattern. Point A begins the chart pattern, B is the middle turning point, and C completes the pattern. Another simple ABC correction occurs at points 1, 2 and 3.

-- Thomas Bulkowski

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Other Simple ABC Correction Examples

See Also

Copyright © 2005-2013 by Thomas N. Bulkowski. All rights reserved. I’m in the prime of my strife.