Measured Moves And Exits

*Bob Iaccino, Chief Market Strategist and Co-Founder of Path Trading Partners, joins us live every Thursday from 11am ET, as our risk management educator. With 30 years' experience working as an active investor in equities, commodities, futures and FX there are few better to talk on the subject of risk management.

Bob has developed a method for breaking down his key fundamentals of risk management, in a way that he thinks retail traders can understand and use to get actionable insights to bring into their own trading. Below are some excerpts of Bob’s thoughts from a recent live session.

Simply put, a measured move is a method where you measure areas of price action to predict the next move. They're very reliable because what you see on your chart represents two things: mob mentality and math. That's all it is.

I was talking about chart patterns with a friend, and he said, "Oh, to me that just looks like a bunch of lines and squiggles."

And I replied, it is lines and squiggles, but behind every single line and every single squiggle is the mob. It's the market. It's human emotion and it's math. It's Fibonacci, it's Gann. It's all these things we see elsewhere in nature presented to you in the form of price action on a chart. And don't dismiss human nature as a driving factor in what happens on a chart.

When you're looking at a massive move on a price chart, you're seeing human emotion in that move, and it's either fear or greed—but it's emotion, make no mistake.

So, when you're looking for measured move targets, you're looking for the next logically human-nature-driven mathematical target on a chart, and you're using previous price action to define it.

That's what measured moves are.

With measured moves, you don't have to guess. You measure the move out and say, "This is my target." A target is not necessarily where you exit a trade. A target is where an action is required. Whether that action is to cut, take off part of the trade, take off the whole trade, tighten your stop to break even, tighten it up to a smaller loss, or even add to it.

If you're a trend trader, many trend traders, when they have a winning trade, add to it because they take some of those winnings and double or triple the position. I don't do that. That approach assumes I can predict how far the move is going to go.

I use measured move targets as a high-probability place where I know the market may pause. It doesn't mean it's going to stop, but it may pause.

I use measured move targets if I don’t have another version of a target. For example, in a trade rotation zone like this, if I had some price action here that contradicted the measured move target, I would use this price action because recent price action is more important than past price action.

Consider these as common pitfalls or mistakes related to measured moves.

Process these factors before you enter the trade. The common mistake is saying, "Well, it's reached 3750. I'm already up two and a half percent. I'm just going to cover it."

That's the most common mistake. The beautiful thing about measured moves is you don't have to overthink. You just measure them.

How did you get your target? It's a measured move target. What does that mean? It means it takes all of the emotion out of finding a target.

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