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. Pattern

    In technical analysis, the distinctive formation created by the ...
  2. Technical Analysis of Stocks and ...

    The academic study of historical chart patterns and trends of ...
  3. Accounting Principles

    The rules and guidelines that companies must follow when reporting ...
  4. Accounting Principles Board - APB

    The prior authoritative body of the American Institute of Certified ...
  5. Price Action

    The movement of a security's price. Price action is encompassed ...
  6. Acceleration Principle

    An economic concept that draws a connection between output and ...
Related Articles
  1. Investing

    What are Accounting Principles?

    The term accounting principles refers to rules and guidelines companies use to help them record their business and financial transactions.
  2. Trading

    Analyzing Chart Patterns: Why Charts?

    By Chad Langager and Casey Murphy, senior analyst of ChartAdvisor.com Before the advent of computers and data feeds, the use of charts to formulate trading strategies was outside the mainstream ...
  3. Trading

    Continuation Patterns: An Introduction

    Those random movements in the charts actually form patterns. Learn the basics of what these patterns are.
  4. Trading

    How To Interpret Technical Analysis Price Patterns: Triple Tops And Bottoms

    Triple and double tops and bottoms may be tough to spot, but once you learn them, they can be powerful patterns.
  5. Trading

    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.
  6. Trading

    Analyzing Chart Patterns: Conclusion

    By Chad Langager and Casey Murphy, senior analyst of ChartAdvisor.com This introduction to chart patterns has provided a broad overview of chart pattern analysis and several of the largest patterns. ...
  7. Markets

    Breakout Stocks to Watch Right Now

    These three stocks are near major breakout points, which will affect the short-term, and potentially the long-term direction of the stocks.
  8. Managing Wealth

    Use Price Action Trading Strategy for Results

    Bored by the fixed rules of technical and fundamental analysis? Price action trading allows you to customize your own trading strategy.
  9. Markets

    Currency Principle vs. Banking Principle: How Different?

    Understanding the difference between the currency principle and the banking principle helps to illustrate the most basic functions of money.
  10. Markets

    Debunking 8 Myths About Technical Analysis

    Investopedia exposes a few common myths about technical analysis.
RELATED FAQS
  1. What are some of the basic Generally Accepted Accounting Principles?

    Learn more about generally accepted accounting principles determined by the Financial Accounting Standards Board, including ... Read Answer >>
  2. How should a change in accounting principle be recorded and reported?

    Learn about changes in accounting principle and why businesses make them, as well as the reporting and recording requirements ... Read Answer >>
  3. Are continuation patterns useful in forex trading and stock trading?

    Learn what a continuation pattern is in technical analysis and why it is useful in forex and stock market trading, and discover ... Read Answer >>
  4. Who sets the guidelines for accounting principles?

    Understand the generally accepted accounting principles and why they were put in place. Learn what entity sets the guidelines ... Read Answer >>
  5. Where do I place my target when the price of a stock breaks out of a technical chart ...

    Technical chart patterns such as ascending triangles, head and shoulders and double bottoms have rapidly grown in popularity ... Read Answer >>
  6. What is a common price target when identifying a double bottom?

    Learn how to identify a double bottom stock pattern and where to set a target selling price point to get the most out of ... Read Answer >>
Hot Definitions
  1. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  2. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  3. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  4. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  5. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  6. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
Trading Center