Bulkowski’s Measured Move Down

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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. For more information on the measured move down chart pattern, see pages 496 to 509 of the book Encyclopedia of Chart Patterns, Second Edition and the following...
Measured move down chart pattern
Measured move down chart pattern parts

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%

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, 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.

Measured move down chart pattern measure rule
The Measure Rule

Example

Measured move down chart pattern 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.

Copyright © 2005-2007 by Thomas N. Bulkowski. All rights reserved. Press any key to continue or any other key to quit.