Discover how to apply measured moves in your technical analysis

Technical analysis is based on reproducing patterns, giving traders direction and rules. From trade identification to targets and stops, technical analysis tools assist trading decisions and clarify uncertain price movements.

Contrary to tools like the Relative-Strength Index or the MACD, measured moves are derived strictly from candlesticks, which may be great for traders who do not want to overpack their charts.

This analysis tool bases its premise on charting harmonic patterns, where it may often be observed that market moves slow or stop at a similar price target to a recent move. However, it is essential to note that measured moves sometimes derive from a few pips or points, but the general idea remains.
Measured moves apply to all timeframes, serving fast-paced, swing, and long-term traders.

We will explore through several examples how measured moves can help you with trading analysis.

Two bullish impulsive moves led the most recent breakout in the German DAX. The first pushed the uptrend towards March 2025 highs, and the second established new all-time highs. As observed in the chart, the second impulsive move is of a similar scale (both close to 4.6%) as the breakout stopped on a wick.

Measured move users may take advantage of such rules as detailed throughout the article.

Bitcoin rallied sensationally in 2024. From prices close to $25,000 in September 2023 to a return to previous all-time highs in March 2024, Bitcoin saw a massive boost. After a few months of consolidation and a failure to retest levels below, prices started their second leg of their 2024 year-end rise as the pricing of Trump’s presidency saw markets soaring.

However, what is of concern here is how the second leg mirrored the prior rally. Observing the measured move allows for profit-taking and determining whether to make decisions on your positions.

1. Using measured moves to determine profit targets

Assessing where to take profit on trades is one of the most crucial parts of a strategy. Due to the market’s unpredictability, knowing where to place profit orders may be challenging.

There are numerous ways to do so, but the target of measured moves is transparent and efficient.

Indeed, similarly to Fibonacci extensions, traders may pre-determine the price or level at which they will place their profit orders before entering the trade.

It is also common for traders to look for a 2:1 profit/loss ratio to give direction on where to place a stop. The article discusses this further.

For example, use the preceding move up on a long trade to determine where you may realise potential gains.

2. Using measured moves to spot a trend reversal

Estimating whether a move has a high probability of approaching its end is highly valuable for trading analysis. As traders, we tend to fear entering a trend at the wrong time. There is also the temptation to fade the current move, which may provide high-value trades, especially in extreme overbought or oversold conditions.

Measured moves may assist traders in spotting a potential trend reversal. Algorithms and other traders use similar measures to exit their trades, possibly creating sharp reversals. This provides clear entries.

For trend reversals, it is advised to let the move reverse a few pips and use this as confirmation to place your stops with even more precision.

3. Using measures moves to place stop losses

Measured moves are an effective way to gauge market volatility. By considering the size of previous moves, traders can better estimate the appropriate stop-loss level to use. It’s common for traders to set their stops too tight, leading to being stopped out before the anticipated move occurs.

This tool provides clarity on how far a counter-move might extend. Analysing average volatility within a trading session helps to determine a maximum extension; beyond this point, the trade is no longer valid. As a general rule of thumb in continuation trades, if a counter-move exceeds the size of the initial move, it indicates that the trend may not continue in the same direction.

Experiencing losing trades is part of the trading process, and accurately hitting your stop-loss level is crucial for effective risk management. This approach helps traders protect their accounts and enables them to participate in the market for the long term.

Measured moves are a versatile tool in candlestick analysis. As discussed in this article, they serve various purposes, including:

• Establishing targets at unseen price levels, such as all-time highs in indexes
• Assessing the strength of trends
• Identifying potential tops or bottoms
• Setting stop-loss orders

Measured moves are straightforward to calculate and offer clarity in traders’ analyses. It is important to note that prices may exceed or reverse before reaching these targets, though this powerful tool provides valuable assistance and direction for traders.