Trading Basics: Evolution of a Trader

MEASURED MOVE SUPPORT AND RESISTANCE

Before I discuss the various tests used to measure support and resistance, look at turns DAEF. Point D begins the move down from a small peak. It bottoms at A, bounces up to E before continuing lower to F. The DAEF move forms a measured move down chart pattern. The idea behind a measured move down is that the length of the first leg (DA) will approximate the length of the second leg (EF). The duration of the two legs is also similar (in theory).

• The first leg of a well-behaved measured move approximates the time and price move of the second leg.

There is also a measured move up chart pattern that applies to upward price trends. It has two rising legs with a small correction between the two legs. See my book, Encyclopedia of Chart Patterns (Wiley, 2005), for more information on these two patterns.

The reason I am discussing measured moves is because of what happens after the pattern ends. What does price do then? Table 4.1 provides the answer. The term, corrective phase, is the retrace from A to E.

Table 4.1 Percentage of Time Price Stops in a Measured Move

Measured Move Up	Bull Market	Bear Market
Price stops above the corrective phase	19%	24%
Price stops within the corrective phase	35%	40%
Price stops below the corrective phase but above the MMU low	31%	19%
Price stops below the MMU low	15%	16%
Measured Move Down (Below)
Price stops below the corrective phase	16%	20%
Price stops within the corrective phase	35%	52%