Measured Moves and E-Mini Trading: Do They Work?
If you gather a group of experienced e-mini traders in a group and float the topic of measured moves you are likely to hear a wide variety of polarizing opinions.
As a matter of fact, you may be hard-pressed to get the group to agree on even a working definition of the term.
Now that I have hinted at the disparity in even defining the term "measured move" you might wonder why I would take the time to write an article about this controversial term.
My reasoning is relatively simple; throughout your e-mini trading experience you will often read about this formation and it is not unusual for traders to rigorously debate the merit, or lack of merit, of this style of chart movement.
Throughout my personal trading experience I have found several common denominators in most discussions of measured moves.
My definition includes the following components: • Measured moves (MM) fall under the general heading of technical analysis.
• MM are believed to be predictive in nature; they are not reactive type chart movements.
• The underlying assumption with MM is that there is a general symmetry (or pattern) in this chart pattern that can be identified and then used to predict a corollary move on that will be similar in size and scope.
• There are generally three loosely accepted and identifiable measured moves; MMup, MMdown, and the MM associated with the ABC correction pattern.
• Proponents of MM will claim that successive price movement repeats after a trend retracement.
This is to say that after a trend retracement, the price action will resume at a similar trend angle and last for a similar duration as the move preceding the retracement.
As you read through the preceding five statements you can quickly grasp why market technicians struggle in accurately describing and implementing this chart pattern.
Of course, any market theory that assigns a high level of randomness to price movement, Efficient Market Theorists (EMT) in particular, gasp at the notion that the market repeats the patterns in a trend.
For that matter, the EMT cabal balks at the idea that the market trends.
Of course, that discussion deserves a lengthy article in its own right; so we will leave that topic alone for now.
In its simplest definition, I believe adherents to measured move analysis assume that the e-mini market moves in similar patterns throughout the course of a trend moving up or down.
I realize that definition is a bit esoteric and slippery, but I think it accurately describes the measured move line of thought.
The real question for any trader is elementary; does MM theory provide any predictive insight into future price movement? I believe that price theorists have accepted as fact the notion that there is a relatively high level of randomness that permeates all price action.
Different market pricing theories assign a variety of percentages to this level of randomness.
Unfortunately, the vast numbers of variables that are inputs into market pricing preclude any truly accurate proofs as to the exact percentage of price movement that is random.
However, simple logic would lead you to the conclusion that any level of random price movement would disallow the idea that there exists any symmetry in successive trend moves - retracement - next trend move.
To have measured moves serve as predictive models, you would have to assume that random movement does not exist.
As I mentioned earlier, it is my belief that it is settled fact that randomness is an important component in any pricing theory.
Having said that, MM theory fails as a predictive model.
Numerous scientific evaluations of MM have come to the same conclusion; symmetry and randomness make poor bedfellows.
In summary, I have attempted to define the rather abstract definition assigned to measured movement and listed some basic characteristics that permeate most discussions on the topic.
I should point out that my short list is far from inclusive of the range of definitional underpinnings associated with measured movement.
In my mind though, random movement automatically disqualifies MM as an effective working tool for a market technician.
Randomness and symmetry simply do not coexist in e-mini trading.
For that reason, I exclude MM from my e-mini trading philosophy and believe that utilizing this type of technical analysis will lead to excessively high false price movement assumptions.
As a matter of fact, you may be hard-pressed to get the group to agree on even a working definition of the term.
Now that I have hinted at the disparity in even defining the term "measured move" you might wonder why I would take the time to write an article about this controversial term.
My reasoning is relatively simple; throughout your e-mini trading experience you will often read about this formation and it is not unusual for traders to rigorously debate the merit, or lack of merit, of this style of chart movement.
Throughout my personal trading experience I have found several common denominators in most discussions of measured moves.
My definition includes the following components: • Measured moves (MM) fall under the general heading of technical analysis.
• MM are believed to be predictive in nature; they are not reactive type chart movements.
• The underlying assumption with MM is that there is a general symmetry (or pattern) in this chart pattern that can be identified and then used to predict a corollary move on that will be similar in size and scope.
• There are generally three loosely accepted and identifiable measured moves; MMup, MMdown, and the MM associated with the ABC correction pattern.
• Proponents of MM will claim that successive price movement repeats after a trend retracement.
This is to say that after a trend retracement, the price action will resume at a similar trend angle and last for a similar duration as the move preceding the retracement.
As you read through the preceding five statements you can quickly grasp why market technicians struggle in accurately describing and implementing this chart pattern.
Of course, any market theory that assigns a high level of randomness to price movement, Efficient Market Theorists (EMT) in particular, gasp at the notion that the market repeats the patterns in a trend.
For that matter, the EMT cabal balks at the idea that the market trends.
Of course, that discussion deserves a lengthy article in its own right; so we will leave that topic alone for now.
In its simplest definition, I believe adherents to measured move analysis assume that the e-mini market moves in similar patterns throughout the course of a trend moving up or down.
I realize that definition is a bit esoteric and slippery, but I think it accurately describes the measured move line of thought.
The real question for any trader is elementary; does MM theory provide any predictive insight into future price movement? I believe that price theorists have accepted as fact the notion that there is a relatively high level of randomness that permeates all price action.
Different market pricing theories assign a variety of percentages to this level of randomness.
Unfortunately, the vast numbers of variables that are inputs into market pricing preclude any truly accurate proofs as to the exact percentage of price movement that is random.
However, simple logic would lead you to the conclusion that any level of random price movement would disallow the idea that there exists any symmetry in successive trend moves - retracement - next trend move.
To have measured moves serve as predictive models, you would have to assume that random movement does not exist.
As I mentioned earlier, it is my belief that it is settled fact that randomness is an important component in any pricing theory.
Having said that, MM theory fails as a predictive model.
Numerous scientific evaluations of MM have come to the same conclusion; symmetry and randomness make poor bedfellows.
In summary, I have attempted to define the rather abstract definition assigned to measured movement and listed some basic characteristics that permeate most discussions on the topic.
I should point out that my short list is far from inclusive of the range of definitional underpinnings associated with measured movement.
In my mind though, random movement automatically disqualifies MM as an effective working tool for a market technician.
Randomness and symmetry simply do not coexist in e-mini trading.
For that reason, I exclude MM from my e-mini trading philosophy and believe that utilizing this type of technical analysis will lead to excessively high false price movement assumptions.
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