Measured Move Chart Pattern Strategy
Today’s trading strategy is about a not so well-known trading pattern aka the bullish measured move. The measured moved chart pattern strategy is both a reversal and a continuation trading strategy.
Our team at Trading Strategy Guides is working hard to put together the most comprehensive guide to different chart pattern strategies. In order to understand the psychology of a chart pattern, please start here: Chart Pattern Trading Strategy step-by-step Guide.
This article will give you a complete review of the measured move pattern, including guidelines on how you can profit from this mysterious pattern. Once you understand the measured move pattern it will open your horizons to better understand how price moves.
Trading the measured move can refine your trading operations to a whole new level. What is surprising about the measured move pattern is that it shows you the market rhythm. Each trading instrument has its own rhythm and the Measured move pattern strategy can help you decode the market rhythm.
We’re also going to provide you with a very clear step-by-step set of rules so you can trade the Measured Move chart pattern strategy by yourself. Here is a strategy you can read about and it's called risk to reward ratio.
Moving forward, we’re going to discuss what makes a good measured move pattern and highlight five basic trading rules to conquer the markets by trading this amazing pattern.
What is the Measured Move Pattern?
The measured move pattern is an old school chart pattern that states that the market has the tendency to move in a similar price structure to how it moved recently. Not just the price distance should be the same but also the time needed to reproduce the same move should be almost the same.
Measured moves can be found in all markets and in all-time intervals.
Let’s say the price action starts from pivot low A and it rallies up to a pivot high called B. Then it drops from pivot B down to C and it rallies one more time to a new pivot high D.
Now, this price action is known as the measured move pattern.
A valid price structure happens when we have a higher low at pivot C and a higher high at pivot D.
You might be asking yourself how the measured move works. The answer is that the CD leg is always measured as a percentage against the AB leg. In a Forex measured move, the CD leg should be equal to the AB move.
Note * From our personal experience we’ve found that the CD leg tends to greater than AB.
The Psychology behind the bullish measured move.
Trading with the measured move pattern will give us clues into the trend direction and also the trend strength.
The strength of the trend stands in the BC retracement. We’re going to use the 50% retracement of the AB price range as a guide for trading the measured move and assert the strength of the trend.
If point C retrace less than 50% of AB range before trading above point B than we can declare this uptrend to be very strong. However, if the retracement at C falls below 50% then we can conclude the trend is weak.
You won’t be able to call the forex measured move until later in the actual development of the pattern. But after you have got the first leg to the upside we should expect the same thing duplicated on the second leg, so trading with the measured move pattern should be an easy job.
Now, let’s see how you can effectively trade with the measured move pattern strategy and how to make profits from basically using no technical indicator.
Measured Move Chart Pattern Strategy – Buy Rules
The measured move chart strategy is an easy way to make money trading forex. You simply have to employ this step-by-step guide on how to use the measured move and you’ll be in tune with the market rhythm.
In essence, trading the measured move is simply an attempt to predict how far the market will continue to move after a price event.
Moving forward, we present the buy side rules of the measured move strategy:
Step#1 Identify a rally which should be composed of a series of Higher Highs followed by a series of Lower Highs
The first stage of the forex measured move as the name suggests is a bullish trend.
Our team at TSG defines the trend very simple. For an uptrend or a bullish trend, we look for a series of higher highs followed by a series of higher lows.
This is the first part of the measured move price structure and can be ad noted as the AB leg (see figure below).
We need to define one more element of this unique trading pattern before outlining our entry technique.
Step#2 The Retracement against the AB rally should not fall below 61.8 Fibonacci retracement.
As a general rule, the measured move strategy performs best when the retracement against the first leg higher doesn’t fall below the 61.8% Fibonacci retracement. Ideally, we want to see the retracement to stay above the 32.8% Fibonacci retracement.
In our case, we can note, that the retracement doesn’t fall below the 61.8% Fibonacci retracement which complies with the rules of the measured move rules.
The retracement ends at the pivot point C
So far, so good.
Now we need to define our entry technique which brings us to the third step of the measured move chart strategy.
Step#3 Buy the bullish measured move at the market price when we break above Pivot point B.
The measured move chart strategy uses a very simple entry technique.
We want to buy at the market as soon as the price breaks above the Pivot point B.
The next logical thing we need to establish for this market trading strategy is where to take profits.
Step#4 Take Profit equal the same price distance measured from pivot point A to B and projected from pivot point C.
In the case of the measured move pattern, we can determine how much the next leg higher will go and how much time it will approximately take to reach that target.
The measured move forex requires to know the price distance of the first rally (AB-leg) and then project to the upside the same price distance starting from pivot point C.
This is how you can determine the potential target for the measured move chart pattern.
The measured move rules can be applied to any geometrical price action. And it’s a great trade technique to fine-tune your exit technique.
The next important thing we need to establish is where to place your protective stop loss.
Step #5: Place the protective stop loss below the pivot point C
A common approach when using the measured move is to hide your protective stop loss just below the pivot point C.
You can use different stop loss techniques as well, like placing the SL below the pivot point A but this comes with taking a much bigger stop loss.
Note*** The above was an example of a BUY trade… Use the same rules – but in reverse – for a SELL trade. In the figure below, you can see an actual SELL trade example, using this new innovative approach to technical analysis.
The measured move chart pattern strategy is a very surprising trading strategy that can be incorporated into your own trading. This trading technique is not the Holy Grail but it’s very helpful to be used to determine potential profit targets. We also have training for Forex Basket Trading Strategy.
The bullish measured move basically is a trend continuation pattern suitable to be traded on all time frames. Trading the measured move will get you in sync with the market rhythm and you’ll no longer be trading based on random numbers.
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