Constructing measured targets after trendline breaks

A measured-objective after the break

After a demand-line or a supply-line is penetrated, a measured-objective is built by repeating, on the far side of the break, the vertical distance between a prior extreme and the line. A demand-line is the upward support trendline used as the reference when measuring a downside-break objective. A supply-line is the downward resistance trendline used as the reference when measuring an upside-break objective.

How the first gap is applied

The first supply-line construction adds the gap from the lowest price to the line directly above it to the line value at the breakout. The first demand-line construction subtracts the gap from the highest price to the line directly below it from the demand-line breakout price. In both cases the same vertical gap is copied onto the far side of the break.

Two further ways to choose the extreme

A second construction replaces the absolute extreme with the session low on the day of the lowest close for a supply-line, or the session high on the day of the highest close for a demand-line. A third construction uses the lowest close versus the supply-line, or the highest close versus the demand-line, as the measured gap applied at the break. These constructions define the measured-objective only.

A separate three-phase sequence

A separate mechanical sequence is specified in three phases: setup, countdown, and entry. The sequence is described as long-horizon and as typically producing only three to four signals a year.

Setup before any later count

A buy setup requires nine consecutive closes, each below the close four sessions earlier. Any interruption restarts the count. Setup is a nine-session consecutive-close filter that classifies the market as extended in one direction before any later count begins.

Countdown and rule-based-entry

After setup, countdown tallies thirteen closes that need not be consecutive, each below the low two sessions earlier, before an entry is considered. Countdown is a thirteen-session, not-necessarily-consecutive close-versus-prior-extreme filter that follows a completed setup. Three buy-entry options are then defined: the close of the thirteenth countdown session, a close above the close four sessions earlier, or the first later close above the high two sessions earlier. Each of those tests is a rule-based-entry and may fire only after countdown is complete.