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Profit Targets (Measured Move / Resistance / R)

Updated Jun 23, 2026 at 8:47pm

Research Draft Medium 780 words

A profit target is a pre-defined exit price chosen before (or at) entry where the trader plans to bank the gain on a swing position. Instead of leaving the exit to in-the-moment judgement, the target turns "where will I sell?" into a number set in advance, which lets the trade be sized, its risk-to-reward measured, and the exit executed mechanically when price arrives. The target is paired with a stop on the other side: the distance from entry to stop is the risk, and the distance from entry to target is the reward.

The methods

There are three common ways to derive the target.

Measured move. Project the height of the chart pattern (or the prior price swing) from the breakout point. StockCharts' ChartSchool describes this directly for a bullish continuation: measure the distance of the first advance and add that distance to the consolidation low to get the target — e.g. a move from roughly $30 to $50 (a $20 advance) that consolidates near $40 projects a target near $60. A percentage variant applies the percentage gain of the first leg to the consolidation low instead. Either way, the pattern's own size becomes the roadmap for how far the next leg might run.

Prior resistance / supply. Use the next obvious overhead level — a prior high, a congestion zone, a round number, or a band of past supply — as a natural target, because that is where sellers have stepped in before and are likely to again. For a long, profits are taken at resistance; for a short, at support. This anchors the target to a level the market has already respected rather than to a calculation.

Fixed R-multiple. Define the target as a multiple of the risk (R), where 1R is the entry-to-stop distance. A 2R target sits twice the stop distance above entry; a 3R target, three times. This makes the reward portable across trades regardless of the stock's price, and ties the exit directly to the risk being taken.

How it's used in practice

The methods are usually combined rather than used alone. A trader first finds a realistic target — the measured move or the next resistance — then checks whether reaching it would clear a minimum risk-to-reward filter. The standard swing-trading filter is at least 2:1 reward-to-risk: the entry-to-target distance must be at least twice the entry-to-stop distance. The risk/reward ratio is just (entry − stop) / (target − entry), and trade advisers commonly look for a reward of roughly two to three times the risk before taking a position.

The order matters. The target should come from the chart (what is actually achievable), and the stop is then placed where the setup is invalidated; if that combination does not produce ≥2:1, the trade is passed rather than the target being inflated to force the math. A common middle path between "sell at the target" and "let it run" is the partial exit: bank part of the position at the first target (often the measured move or first resistance) and trail a stop on the remainder to capture any further extension.

Strengths & limitations

A fixed target's strength is that it locks in a defined, positive-expectancy reward and removes the temptation to hold a winner until it round-trips back to break-even. Its limitation is the mirror image: exiting at a pre-set level caps the occasional outsized winner — the rare trade that would have run for many multiples of risk is cut short at 2R or 3R. This is the genuine let-it-run vs take-it tension, and there is no free answer. Selling at the target raises win rate and smooths equity but forfeits the fat tail; trailing instead of targeting captures the big move but gives back open profit and lowers the hit rate. Honestly, measured-move and resistance targets are estimates, not guarantees: StockCharts explicitly warns these projections "should only be used as rough guidelines," and securities both exceed and fall short of them, so a target is better treated as a price zone to act around than a precise line. The partial-exit approach exists precisely because neither pure stance is optimal in all conditions.

System relevance

In the Augustus pipeline, a profit target is set so the proposed trade gives at least a 2:1 reward-to-risk against its stop; setups that cannot reach a credible target (measured move or prior resistance) at that ratio are filtered out rather than entered.

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