Measuring Principle

DEFINITION of 'Measuring Principle'

In techincal analysis, An intangible principle for finding mininum security price targets for traders. The measuring principle uses technical analysis to analyze chart patterns to detect stock levels that, if broken, could lead to a small down leg. More specifically, it allows traders to set a reasonable minimum price target on a stock by weighing the movements of the stock chart pattern against each other.

BREAKING DOWN 'Measuring Principle'

The measuring principle works well with any clearly-defined technical chart pattern, such as a head-and-shoulder formation or rectangle or triangle. There is no hard and fast mathematical proof that this analysis technique works, but historically it has tended to be relatively accurate. If the stock price begins to diverge from the expected outcome according to the principle, then quick action may be necessary.

RELATED TERMS
  1. Stock

    A type of security that signifies ownership in a corporation ...
  2. Index

    A statistical measure of change in an economy or a securities ...
  3. Trader

    An individual who engages in the transfer of financial assets ...
  4. Callable Preferred Stock

    A type of preferred stock in which the issuer has the right to ...
  5. Technical Analysis

    A method of evaluating securities by analyzing statistics generated ...
  6. Golden Cross

    A crossover involving a security's short-term moving average ...
Related Articles
  1. Active Trading

    Measure Momentum Change With ROC

    Learn how to build a price rate of change indicator and incorporate it in your strategy.
  2. Active Trading Fundamentals

    Support And Resistance Basics

    Understanding the concept of Support and Resistance in trading can drastically improve your short-term investing strategy.
  3. Trading Strategies

    Momentum And The Relative Strength Index

    These two indicators can give the trader a better understanding of when to get in and out of an issue.
  4. Active Trading Fundamentals

    Weighted Moving Averages: The Basics

    We take a closer look at the linearly weighted moving average and the exponentially smoothed moving average.
  5. Trading Strategies

    Momentum Indicates Stock Price Strength

    Momentum can be used with other tools to be an effective buy/sell indicator.
  6. Forex Education

    Introduction to Types of Trading: Technical Traders

    Learn about the different traders and explore in detail the broader approach that looks to the past to predict the future.
  7. Forex Education

    The Rectangle Formation

    Find out how this technical pattern can be useful in your trading arsenal.
  8. Investing

    What Investors Need to Know About Returns in 2016

    Last year wasn’t a great one for investors seeking solid returns, so here are three things we believe all investors need to know about returns in 2016.
  9. Chart Advisor

    3 Charts That Suggest Now Is The Time To Invest In Real Estate (VNQ, SPG,PSA)

    Real estate assets have some of the strongest uptrends around. We'll take a look at three candidates poised for a move higher.
  10. Chart Advisor

    Stocks With More Upside Due to Bear Traps (TAP, SPY)

    A bear trap is a pattern that typically leads to at least a short-term rise in prices. Here are stocks exhibiting the pattern.
RELATED FAQS
  1. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  2. Can working capital be too high?

    A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>
  3. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  4. How do I use discounted cash flow (DCF) to value stock?

    Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>
  5. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  6. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
Hot Definitions
  1. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  2. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  3. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  4. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  5. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  6. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center