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Written by and copyright © 2005-2009 by Thomas N. Bulkowski. All rights reserved.
For more information on this pattern, read
Encyclopedia of Chart Patterns, Second Edition  ,
pictured on the right, pages 496 to 509. That chapter gives a complete review of the chart pattern, including tour, identification guidelines, focus on failures, performance statistics, trading tactics, and sample trade. Below is just a sliver of the information contained in the book.
Measured moves are great for everything but trading. They tell you how far price is likely to
drop, and how long it will take. The measured move down chart pattern is not always accurate hitting its price and time
targets, but it does give you an estimate. If you insist on trading them, see the
simple ABC correction. It's a nested measured move down inside a measured move up.
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Measured Move Down Chart Pattern
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Important Bull Market Results
Average first leg price decline: 27% in 61 days
Average corrective phase retrace: 48% in 30 days
Average last leg price decline: 25% in 62 days.
Percentage meeting price target: 35%
Percentage meeting time target: 53%
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Identification Guidelines
| Characteristic | Discussion |
| Trend | Measured moves (MMDs) are reversal patterns so look for an upward price trend leading to the MMD. |
| First leg | Usually begins from a new high. Prices decline rapidly in a straight-line affair. Avoid declines that curve. |
| Corrective phase | Prices retrace between 38% and 62% of the first leg move. If the retrace carries price above the top of the first leg, avoid the MMD. |
| Proportional | The corrective phase should look proportional to the first leg. Be suspect of retraces larger than 62%. |
| Second leg | The slope of the first leg often approximates the slope of the second leg although the two are separated by the corrective phase. Both legs often fit in their own channels. |
| Volume trend | Trends downward 74% of the time and is dome shaped 61% of the time. |
| Avoid | Don’t trade measured moves that appear as horizontal, saw tooth patterns or those that spring from a flat base. |
Trading Tips
| Trading Tactic | Explanation |
| Measure rule | The second leg averages 19% shorter than the first. Compute
the length of the first leg from highest peak (point A
in the Measure Rule figure to the right) to lowest valley at the start of the
corrective phase (B) then multiply it by the
above “percentage meeting price target.” Subtract the result from the
highest peak in the corrective phase (C) to get a
price target. |
| Short | Short once the second leg begins. If price rises above the corrective phase high, close out the short. |
| Target | If price nears the target or support abounds near the target as price approaches, close out the position. |
| Completion | After a MMD completes, price remains below the corrective
phase 16% of the time, 35% stop rising within the corrective phase, 31% rise above the corrective phase but below the MMD’s
start, and 18% continue rising above the MMD. |
| Retrace | The larger the corrective phase retrace, the better the chance of meeting the price target. |
| Volume | Patterns with U-shaped volume reach their price targets more often than do those with dome-shaped volume. |
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 The Measure Rule
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Example
The above figure shows an example of a measured move down chart pattern. Price begins the first leg down at
A and ends at B where it enters the corrective phase.
The peak in the corrective phase is at C and that marks the start of the second leg down.
The second leg ends at D before price pulls back to E and
eases down thereafter.
Other Examples
-- Thomas Bulkowski
Copyright © 2005-2009 by Thomas N. Bulkowski. All rights reserved. Press any key to continue or any other key to quit.
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