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What Is Divergence in Technical Analysis? What Are Technical Indicators?
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What Are Measured Moves in Technical Analysis?

Measured moves are a popular concept in technical analysis that can help traders and investors make more informed trading decisions. In this article, we will explore the concept of measured moves in more detail, including how they work, what tools and techniques can be used to identify them, and some of the potential benefits and limitations of using measured moves in trading.

What Are Measured Moves?

A measured move is a trading concept in technical analysis that helps traders predict potential price movements of financial assets. Measured moves work by identifying a significant price move in an asset, such as a trend or a reversal, and then projecting the same distance or a predetermined percentage of that move to estimate the potential size and direction of the next move.

Measured moves are based on the idea that financial markets move in predictable patterns and that these patterns can be used to make informed trading decisions. By measuring the distance of the previous price move and projecting it forward, traders can identify potential entry and exit points for trades.

Measure Move

Using Measured Moves for Profit Targets

Measured moves can be a useful tool for traders looking to set profit targets in their trading strategies. One of the main reasons for this is their objectivity. Measured moves are based on objective measurements of previous price action, which can provide traders with a more reliable basis for setting profit targets.

Here are the steps to use measured moves for profit targets:

  1. Identify the initial move: Look for a clear, strong price move in the direction of your trade. This could be an uptrend or a downtrend.
  2. Measure the move: Once you have identified the initial move, measure its length. This can be done by using a charting tool that allows you to draw a line from the beginning of the move to the end of the move.
  3. Identify the correction: After the initial move, the price may retrace or correct. This correction may take the form of a consolidation or a pullback. You should be able to identify a clear and distinct correction.
  4. Measure the correction: Once you have identified the correction, measure its length. This can be done by drawing a line from the end of the initial move to the end of the correction.
  5. Project the move: Once you have measured both the initial move and the correction, you can use this information to project the likely length of the subsequent move. To do this, you simply add the length of the initial move to the end of the correction. This will give you a potential profit target.
  6. Monitor the price action: As the price approaches the projected profit target, monitor the price action carefully. If the price shows signs of reversal or weakness, you may want to consider taking profit or adjusting your position size.

Measured moves can be applied to a variety of chart patterns, such as flags, pennants, and other consolidation patterns. This makes it possible to use measured moves in a variety of market conditions, providing traders with a versatile tool that can be used in different situations.

Measured Move Example

Here is an example of how a measured move can be applied to a simple uptrend:

Suppose a stock has been trending upwards and has recently made a strong price move from $50 to $70. After this initial move, the stock experiences a retracement and drops down to $60 before resuming its upward trend.

Using a measured move, a trader can project a potential profit target for the subsequent move. To do this, the trader would measure the length of the initial move from $50 to $70, which is $20, and add this number to the end of the retracement ($60), which gives a potential profit target of $80. If the trader believes the stock is likely to continue its uptrend, they may use this $80 level as a profit target for their trade.

Pros and Cons of Measured Moves

Here are some potential benefits and limitations of using measured moves in your trading strategy:

Pros:

  1. Helps identify potential price targets: Measured moves can be a useful tool for identifying potential price targets, which can be helpful for traders looking to set profit targets or exit points.
  2. Provides a framework for analysis: Measured moves provide a structured framework for analyzing price movements, making it easier for traders to identify patterns and potential trading opportunities.
  3. Can help manage risk: Measured moves can also be used to manage risk by setting stop loss orders at predetermined levels, which can help limit potential losses in case the trade goes against you.
  4. Can be used across multiple timeframes: Measured moves can be applied across multiple timeframes, making it a versatile tool for traders of all styles and strategies.

Cons:

  1. Not always reliable: While measured moves can be a useful tool for technical analysis, they are not always reliable and may not always play out as expected.
  2. Requires technical skill: Identifying and interpreting measured moves requires technical skill and experience, which may be a barrier for some traders.
  3. May result in missed opportunities: Focusing solely on measured moves may cause traders to miss other potential trading opportunities or fail to consider other important factors that could impact the price movement.
  4. Can be subjective: Identifying measured moves can be somewhat subjective, as different traders may interpret the same pattern differently based on their own analysis and experience.

The Bottom Line

In conclusion, measured moves are a popular technical analysis tool used by traders to identify potential price targets and trading opportunities. Ultimately, measured moves can be a valuable tool in a trader’s arsenal, but like any trading strategy, they require skill, experience, and discipline to be used effectively. By combining measured moves with other analysis techniques, and managing risk carefully, traders can increase their chances of success in the markets.

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