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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...
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 Measured move down chart pattern parts
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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%
Identification Guidelines
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Characteristic |
Discussion |
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Trend |
Measured moves (MMDs) are reversal patterns so look for
an upward price trend leading to the MMD. |
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First leg |
Usually begins from a new high. Prices decline rapidly
in a straight-line affair. Avoid declines that curve. |
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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. |
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Proportional |
The corrective phase should look proportional to the first
leg. Be suspect of retraces larger than 62%. |
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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. |
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Volume trend |
Trends downward 74% of the time and is dome shaped 61%
of the time. |
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Avoid |
Don’t trade measured moves that appear as horizontal,
saw tooth patterns or those that spring from a flat base. |
Trading Tips
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Trading Tactic |
Explanation |
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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 |
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Short |
Short once the second leg begins. If price rises above
the corrective phase high, close out the short. |
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Target |
If price nears the target or support abounds near the target,
close out the position. |
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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. |
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Retrace |
The larger the corrective phase retrace, the better the
chance of meeting the price target. |
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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.
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