Stocks & Commodities V. 23:1 (52-55): The Simple ABC Correction by Thomas N. Bulkowski

Stocks & Commodities V. 23:1 (52-55): The Simple ABC Correction by Thomas N. Bulkowski
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Stocks & Commodities V. 23:1 (52-55): The Simple ABC Correction by Thomas N. Bulkowski

This chart pattern reliably signals an extended move up. Take a look.

An old joke says that if an investor buys land in an earthquake zone, it will be his own fault. When I see a simple ABC correction in a stock, it reminds me of pavement pushed up by an earthquake. The upward price trend shifts downward in a stair-step correction and then the price trend resumes its upward march, many times for an extended rally.

Figure 1 shows what Iím talking about. An upward price trend begins at point 1 and soars to point 2 before rounding over. Prices retrace a portion of the advance, forming the simple ABC correction. After meeting support at point C, prices resume their upward trend. This example shows a rounded volume appearance, the most common shape.

IDENTIFICATION: SEARCHING THE PAVEMENT

What should you look for when searching for ABCs? Since this is a new pattern for me and I had little to go on, I made up my own set of rules to select patterns for statistical analysis. The essence of the ABC pattern is a measured move down (MMD) chart pattern. In a MMD, the drop from 2 to A is nearly the same as the drop from B to C. The ABC pattern does not have that restriction, but it does have others. Take a look at Figure 2.




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