Thomas N. Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with almost 30 years of stock market experience and widely regarded as a leading expert on chart patterns. His four books, including the best selling Encyclopedia of Chart Patterns, have been translated into six languages. He may be reached at

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Bulkowski’s Measure Rule

Market

Industrials (^DJI):

Transports (^DJT):

Utilities (^DJU):

Nasdaq (^IXIC):

S&P 500 (^GSPC):

As of 09/02/2010

10,320.10 50.63 0.5%

4,342.03 58.62 1.4%

396.87 -0.49 -0.1%

2,200.01 23.17 1.1%

1,090.10 9.81 0.9%

YTD

-1.0%

5.9%

-0.3%

-3.0%

-2.2%

Tom’s Targets

10,475 by 09/15/2010

4,450 by 09/15/2010

400 by 09/15/2010

2,250 by 09/15/2010

1,100 by 09/15/2010

Mkt Overview: 08/29/2010

Test Portfolios and CPI

Indus. strength: -6.9%

Mutt Losers: 10.2%

Mutt Winners: 1.1%

Wilder RSI: 1.2%

CPI: on 08/27/2010

Use the measure rule to predict a price target. The rule varies from chart pattern to pattern as the below table shows. Usually the measure rule is the height added to (upward breakouts) or subtracted from (downward breakouts) the breakout price (this is the method I describe in my book, Encyclopedia of Chart Patterns, Second Edition, pictured on the right.

Unfortunately, that formula doesn’t work well. Instead, multiply the height by the “percentage meeting price target,” which I show in the below table as percentages. The result should be a closer and more accurate price target.

For example, if a broadening top has a high price of 25 and a low of 20 with a breakout of 22, an upward breakout target in a bull market would be B + ((H - L) * 62%) = 22 + ((25 – 20) * 62%) = $ 25.10. A downward breakout in a bull market would use the formula B - ((H - L) * 37%) = 22 – ((25 – 20) * 37%) = $ 20.15.

The formula may look complex but it’s not. Anyone with a doctorate in mathematics can figure it out in a few hours.

Notes:

B = The breakout price which is where price pierces a trendline.

CBG = The closing price before a gap.

CPH = The highest price in the corrective phase.

CPL = The lowest price in the corrective phase.

H = Price of the highest peak in the chart pattern

L = Price of the lowest valley in the chart pattern

H – L is the price of the highest peak minus the price of the lowest valley.

HL = Lowest price in the head.

HH = Highest price in the head.

NL = Neckline, measured vertically from the peak or valley in the head.

RL = Price of the right saucer lip.

Bull Markets

Bull Market Chart Pattern	The Measure Rule
Broadening Bottoms, down breakout	B - ((H – L) * 44%)
Broadening Bottoms, up breakout	B + ((H – L) * 59%)
Broadening Formations, Right-Angled and Ascending, down breakout	L - ((H – L) * 32%)
Broadening Formations, Right-Angled and Ascending, up breakout	B + ((H – L) * 68%)
Broadening Formations, Right-Angled and Descending, down breakout	B - ((H – L) * 44%)
Broadening Formations, Right-Angled and Descending, up breakout	H + ((H – L) * 63%)
Broadening Tops, down breakout	B - ((H – L) * 37%)
Broadening Tops, up breakout	B + ((H – L) * 62%)
Broadening Wedges, Ascending, down breakout	Lowest low or B - ((H – L) * 58%)
Broadening Wedges, Ascending, up breakout	B + ((H – L) * 69%)
Broadening Wedges, Descending, down breakout	B - ((H – L) * 36%)
Broadening Wedges, Descending, up breakout	Highest high or B + ((H – L) * 79%)
Bump-and-Run Reversal Bottoms, up breakout	Highest high or B + ((H – L) * 68%)
Bump-and-run Reversal Tops, down breakout	B - ((Lead-in height) * 78%)
Cup-with-Handle, up breakout	B + ((H – L) * 50%)
Cup-with-Handle, Inverted, down breakout	B - ((Handle height) * 47%)
Diamond Bottoms, down breakout	B - ((H – L) * 63%)
Diamond Bottoms, up breakout	B + ((H – L) * 81%)
Diamond Tops, down breakout	B - ((H – L) * 76%)
Diamond Tops, up breakout	B + ((H – L) * 69%)
Double Bottoms, Adam & Adam, up breakout	H + ((H – L) * 66%)
Double Bottoms, Adam & Eve, up breakout	H + ((H – L) * 66%)
Double Bottoms, Eve & Adam, up breakout	H + ((H – L) * 66%)
Double Bottoms, Eve & Eve, up breakout	H + ((H – L) * 67%)
Double Tops, Adam & Adam, down breakout	L - ((H – L) * 72%)
Double Tops, Adam & Eve, down breakout	L - ((H – L) * 69%)
Double Tops, Eve & Adam, down breakout	L - ((H – L) * 72%)
Double Tops, Eve & Eve, down breakout	L - ((H – L) * 73%)
Flags, down breakout	Flag high - ((Flagpole height) * 47%)
Flags, up breakout	Flag low + ((Flagpole height) * 64%)
Flags, High and Tight, up breakout	B + (Half the rise leading to flag top)
Gaps	None
Head-and-Shoulders Bottoms, up breakout	B + ((NL – HL) * 74%)
Head-and-Shoulders Bottoms, Complex, up breakout	B + ((NL – HL) * 74%)
Head-and-Shoulders Tops, down breakout	B - ((HH - NL) * 55%)
Head-and-Shoulders Tops, Complex, down breakout	B - ((HH - NL) * 53%)
Horn Bottoms, up breakout	H + ((H – L) * 76%)
Horn Tops, down breakout	L - ((H – L) * 70%)
Islands Reversals, down breakout	L - ((H – L) * 62%)
Islands Reversals, up breakout	H + ((H – L) * 69%)
Islands, Long, down breakout	CBG - ((H – L)/2 * 78%)
Islands, Long, up breakout	CBG + ((H – L)/2 * 82%)
Measured Move Down (second leg target)	CPH - ((H – CPL) * 35%)
Measured Move Up (second leg target)	CPL + ((CPH - L) * 45%)
Pennants, down breakout	Pennant high - ((Flagpole height) * 51%)
Pennants, up breakout	Pennant low + ((Flagpole height) * 60%)
Pipe Bottom, up breakout	H + ((H – L) * 83%)
Pipe Tops, down breakout	L - ((H – L) * 70%)
Rectangles Bottoms, down breakout	L - ((H – L) * 50%)
Rectangles Bottoms, up breakout	H + ((H – L) * 85%)
Rectangles Tops, down breakout	L - ((H – L) * 63%)
Rectangles Tops, up breakout	H + ((H – L) * 80%)
Rounding Bottoms, up breakout	RL + ((RL – L) * 57%)
Rounding Tops, down breakout	RL - ((H - RL) * 24%)
Rounding Tops, up breakout	H + ((H - RL) * 61%)
Scallops, Ascending, down breakout	L - ((RL – L) * 25%)
Scallops, Ascending, up breakout	RL + ((RL – L) * 58%)
Scallops, Ascending and Inverted, up breakout	H + ((H – L) * 61%)
Scallops, Descending, down breakout	L - ((H – L) * 30%)
Scallops, Descending, up breakout	RL + ((H – L) * 35%)
Scallops, Inverted and Descending, down breakout	L - ((H – L) * 38%)
Three Falling Peaks, down breakout	L - ((H – L) * 33%)
Three Rising Valleys, up breakout	H + ((H – L) * 58%)
Triangles, Ascending, down breakout	B - ((H – L) * 68%)
Triangles, Ascending, up breakout	H + ((H – L) * 75%)
Triangles, Descending, down breakout	L - ((H – L) * 54%)
Triangles, Descending, up breakout	B + ((H – L) * 84%)
Triangles, Symmetrical, down breakout	B - ((H – L) * 48%)
Triangles, Symmetrical, up breakout	B + ((H – L) * 66%)
Triple Bottoms, up breakout	H + ((H – L) * 64%)
Triple Tops, down breakout	L - ((H – L) * 40%)
Wedges, Falling, down breakout	B - ((H – L) * 30%)
Wedges, Falling, up breakout	Highest high or B + ((H – L) * 70%)
Wedges, Rising, down breakout	Lowest low or B - ((H – L) * 46%)
Wedges, Rising, up breakout	B + ((H – L) * 58%)

Bulkowski’s Measure Rule

Bull Markets

See Also