Notices

Measured move

From Traderpedia

Definition:
A price projection, generally based on a chart pattern or indicator.


The theory behind a measured move is that the different legs of a move in the price of an instrument will be approximately the same strength and hence deliver roughly the same amount of movement.

For example, if the S&P 500 is trading in the 1150 area and rallies to the 1155 area, then makes a retracement back to the 1152.50 area, an analyst may predict that the price is now going to go to the 1157.50 area.

1155 - 1150 = 5 points (upwards move)

1155 - 1152.50 = 2.5 points (downwards move)

1152.50 + 5 points upwards potential = 1157.50.

This could then be followed by another 2.50 point pullback to 1155, and so on.

At some point, the move in either the upwards or downwards direction will be stronger than anticipated, and the pattern may then reverse or continue to weaken.