Forex strategy «Measured movement» [Forex & Crypto Trading Strategy] (to be more precise, that’s what the pattern is called) is of 2 types: bearish and bullish, sometimes these figures of graphical analysis are also called: «Bearish measured move» pattern, «Bullish measured move» pattern or «Swing movement» ”and today we will consider the strategy of trading this figure and the formation in the forex market.
Despite the large number of names, the meaning of the pattern does not change at all!
The pattern consists of 3 phases of formation or 3 waves.
Let’s consider the Pattern «Measured movement UP» and the phases of its formation:
1. Before the formation of a pronounced minimum of the pattern, an opposite trend must be formed (downward or at least sideways)
2. The 1st wave of the pattern is usually a movement in a narrow channel lasting from several weeks to several months, and the main condition is that this movement is not a clear sharp upward trend, but a measured, progressive upward movement.
3. A corrective 2nd wave of the pattern is formed (down) and usually it is 38.2 — 61.8% Fibonacci, but in most cases 50%!
4. The 3rd wave is formed, approximately equal in distance to the 1st upward movement in the distance of the past points, and in the same direction as this 1st movement. That is, equal 2 movements of the 1st and 3rd waves are formed on the market, hence the name — “measured movement” or “Measured move” …
The process of forming the pattern «Seasoned movement DOWN»
It is absolutely identical to the one discussed above — up, so I will not describe its phases, the only difference is the direction of formation of 3 waves (they are opposite).
Now let’s take a look at:
Trading strategy for this pattern:
For example, let’s take the current situation on the EURUSD market + the same pattern (we did not particularly try to trade it, but acted according to the rules of graphical analysis and got the same result). Although I always try to find the equality of price movements (as an example, the equality of waves AB = BC in the forex strategy “Flag + ABC”), I still heard about this pattern many times and watched it on the market, so I did not exclude the possibility of its formation!
That is why I am now describing it in this forex strategy.
1) First of all, we consider the possibility of entering the market at the moment when we have 2 waves formed: the 1st — AB and the 2nd — BC, and they correspond to the pattern trading rules:
- the movement is not abrupt and preferably in a narrow channel,
- there is a correction to the level of 50% or 38.2-61.8%
2) We build a trend line or a channel based on the highs of wave 2 (for the “Measured upward movement” pattern).
3) The breakdown of this line and, if possible, its retest + additional signals (for example, Fibo on a retest) is a signal to enter the market to buy! Pictured Buy 1
4) Stop-loss is placed under a clearly expressed minimum of movement and behind an important Fibonacci level from wave 1 — in the figure Stop Loss 1
5) Profit — the border of the opposite channel of the entire movement (the channel is built on 3 points 1-2-3) or the equality of the movements of wave 1 (segment A-B) and 2 (segment C-D)
In the figure, Zone Take Profit: the upper red trend line of red color (3rd touch) + the upper line of the purple channel of the CD wave + 161.8% Fibonacci extension of the BC wave
6) If you missed the entry above point C, then the second entry option is to rewrite the high of point B (for example, Buy 2), while placing the stop loss behind the nearest local minimum (Stop Loss 1) or an important Fibonacci level of the upward movement with a minimum of point C, profit is the same!
You should also always remember that there are practically no waves that are ideal in terms of equality, therefore, we take the approximate value of the points of wave 1 + an additional signal (trend lines, channels, etc.) to find profit.
By and large, the Measured Movement pattern is not a particularly good option for waiting for its formation and as a result of a deal, but as a pattern projecting the direction of future price movement, including profit, it is a good enough option. And it is also an additional signal for identifying a possible trend for the next few weeks or months at least.
And of course, we must not forget about the rules of Forex money management!
So, you still need to know this pattern of graphical analysis, although I repeat once again that even without knowing this pattern, we can successfully enter the market, thanks to the breakdown of trend lines and channels in forex graphical analysis.
I do not attach MT4 templates and indicators, since all the constructions are graphical and in each case they will be completely different.