A target derived from a pattern's own size, such as projecting the height of a triangle or flagpole from the breakout point.
Measured moves give a pattern an objective target instead of an opinion. The height of a double-top is projected down from the neckline; a bull-flag's pole is projected up from the break; a triangle's widest part is added to the breakout.
The reasoning is crude but useful: the pattern's size is a proxy for how much energy is stored in it, and it gives you a number to compare against your risk to compute a risk-reward-ratio before entering.
Do not confuse a target with a forecast. Many measured moves are never reached, and many are far exceeded. Their real function is filtering: if the measured move does not comfortably exceed your stop distance, the trade is not worth taking regardless of how good the pattern looks.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Head and shoulders. Three peaks in a row, the middle one highest, with the two dips between them joined by a line called the neckline. Traders watch for price to close back through that line. Turned upside down the same shape is the inverse head and shoulders.Risk and reward on one trade. One trade on a price scale: the entry sits 2.00 points above the stop and 6.00 points below the target, so the shaded reward band is three times the risk band. The ratio compares what is lost if the stop is hit with what is gained if the target is reached.
Educational only, not advice. Spotted an error? Post in Site Feedback.