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.