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Trading the Measured Move: A Path to Trading Success in a World of Algos and High Frequency Trading by David Halsey

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CHAPTER 6

Three Types of Trade Setups

There are three types of trading setups that we use to trade the markets:

1. The traditional 50 percent measured move (MM).
2. The extension 50 percent MM.
3. The 61.8 percent MM.

Our goals are to know how to identify these trade setups and how to trade them. In order to confidently execute our trades, we must examine which setups to trust, and know when to watch for confirmation and participation.

The Traditional 50 Percent Measured Move

The traditional setup is when we pull back 50 percent or halfway back of an initial rally. Many traders that are first made aware of this pattern in the market often ask how high-frequency trading (HFT) programs trade this setup. In Figure 6.1, the market is rallying away from the lows of 1.2627, and we continue to trail the market. Every time the market touches its 50 percent MM, the HFT programs will fill new orders. In this particular example, price did not make a pullback into a full 50 percent retracement until the market came off a high of 1.3324. There was a resting limit long waiting to fill its buy order at 1.2976. The same programs that are waiting to buy the 50 percent MM are now waiting to take profit at the markets 123 percent profit target at 1.3489. This target is 123 percent of the total distance of the initial rally that was trailed from lows to highs by the program trades. In this example, the market took 14 days and traveled 513 pips to its target. Every 50 percent MM that a program ...

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