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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.
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Identification Guidelines
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Characteristic |
Discussion |
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Nested |
The simple ABC correction is a
measured move down chart pattern nested inside a
measured move up.
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Chart |
See the above chart. Point D must be below point C, meaning
that the measured move down (MMD) must not correct too far. MMDs that correct too far fail more often. |
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Corrective phase |
The 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. |
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Points |
Within 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. |
Trading Tips
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Trading Tactic |
Explanation |
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Trendline |
Draw a trendline from E to B and extend it downward. When
price closes above the trendline, buy. |
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Swingers |
For 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
also works as a buy signal. |
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Buy |
For conservative investors, a close above B or even E is
the buy signal |
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Reverse |
Be prepared for price to reverse at E – 36% do and
prices drop, confirming a double top. |
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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.
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