What does the Measured Rule help to determine in technical analysis?

The Measured Rule is a tool used in technical analysis to determine the distance to potential price targets. This method is particularly useful when analyzing chart patterns, such as triangles or flags, by measuring the distance from a pattern's established high to low (or vice versa) and then projecting that distance from the breakout point.

By applying the Measured Rule, traders can set realistic price targets based on historical price movements, thereby enhancing decision-making regarding potential future price movements. It effectively aids in establishing expectations for how far the price may move following a breakout, which is critical in risk management and setting profit targets.

Using the Measured Rule correctly can assist traders in identifying likely reversal or continuation points based on the dynamics observed within the patterns on the chart. This understanding is vital for effective trading strategies and for optimizing entries and exits within the market context.