The Measure Rule For Price Prediction by Thomas Bulkowski
You stare at a chart to try and figure out where prices will go. Will they go up or down? Here’s one way to make a prediction using the height of common chart patterns, and the nice thing is, you can do it with a high degree of probability.
Want to know what next week’s stock price will be? Me, too. No one knows for sure, of course, but we can make an educated guess. One way to do that is to use the measure rule for chart patterns.
When people and institutions trade stocks, their transactions form peaks, valleys, and straight-line runs. If you connect those squiggles on the chart, they form what is known as chart patterns.
For example, suppose the stock shown in Figure 1 makes you drool when it bottoms at $38.30 (A), a price you think is a bargain. You buy 1,000 shares and hope that the stock climbs to 45. In the following weeks, the stock behaves and peaks near 41 (C)...