A:

Technical chart patterns such as ascending triangles, head and shoulders and double bottoms have rapidly grown in popularity among individual investors, but the biggest challenge when using these patterns is deciding when to exit an existing position.

Many different targets can be used when using technical chart patterns, but the most popular method is to measure the height of the pattern and either add it to or subtract it from the breakout price.

Let's look at this chart as an example: a trader who is able to identify this ascending triangle will set his or her target near $25. This target price of $25 is calculated by taking the height of the pattern of $2.60 ($22.40 - $19.80) and adding it to the entry price of $22.40.

pricetarget.gif

You can also use the height of the pattern to calculate the target on patterns that predict a downward trend, such as a head and shoulders pattern; the only difference is that the height is subtracted from the entry price rather than added to it. Many conservative investors use the height of the pattern to calculate their maximum target, but often choose to close out their position earlier, ensuring that they lock in their profits.

To learn more about various chart patterns, see Price Patterns - Part 1 and our Technical Analysis tutorial.

RELATED FAQS
  1. What is a common price target when identifying a double bottom?

    Learn how to identify a double bottom stock pattern and where to set a target selling price point to get the most out of ... Read Answer >>
  2. Are continuation patterns useful in forex trading and stock trading?

    Learn what a continuation pattern is in technical analysis and why it is useful in forex and stock market trading, and discover ... Read Answer >>
  3. How do I find stocks developing ascending triangle patterns?

    Learn more about the types of computer programs and software packages that can help traders scan the market for specific ... Read Answer >>
  4. How do I build a profitable strategy when spotting a Triple Bottom pattern?

    Learn about the triple bottom chart pattern and how to create a profitable trade strategy based on this pattern, including ... Read Answer >>
  5. How do I build a profitable strategy when spotting an Triple Top pattern?

    Learn how to create profitable trade strategy based on the triple top chart pattern, including optimal entry and exit points ... Read Answer >>
  6. What is the breakout target price of an descending triangle?

    Find out more about the most common method traders use to place their target price following a breakout from a descending ... Read Answer >>
Related Articles
  1. Trading

    Most Commonly Used Forex Chart Patterns

    These chart patterns provide entries, stops and profit targets that can be easily seen.
  2. Trading

    Head and Shoulders Top Forming in These Stocks

    Head and shoulders patterns in these stocks indicate lower prices to come.
  3. Trading

    How To Trade The Head And Shoulders Pattern

    The head-and-shoulders chart pattern is a popular and easy-to-spot pattern - once a trader is aware of what they are watching for.
  4. Trading

    Continuation Patterns: An Introduction

    Those random movements in the charts actually form patterns. Learn the basics of what these patterns are.
  5. Trading

    Fours Stocks Breaking Out to the Upside (IBN, WDC)

    These stocks are breaking through chart pattern resistance, signaling another move to the upside.
  6. Investing

    How To Interpret Technical Analysis Price Patterns: Triple Tops And Bottoms

    Triple and double tops and bottoms may be tough to spot, but once you learn them, they can be powerful patterns.
  7. Trading

    Triangle Patterns Suggest These 3 ETFs Are Headed Higher (XLV, EWJ)

    Bullish chart patterns such as the popular ascending triangle suggest that the bulls are in control. Watch these stocks: XLV,EWJ.
RELATED TERMS
  1. Continuation Pattern

    A technical analysis pattern that suggests a trend is exhibiting ...
  2. Diamond Top Formation

    A technical analysis reversal pattern that is used to signal ...
  3. Rising Bottom

    A pattern on a security's chart that results from the daily low ...
  4. Double Top And Bottom

    Chart patterns in which the quote for the underlying investment ...
  5. Ascending Triangle

    A bullish chart pattern used in technical analysis that is easily ...
  6. Triple Top

    A pattern used in technical analysis to predict the reversal ...
Hot Definitions
  1. Restricted Stock Unit

    Compensation offered by an employer to an employee in the form of company stock. The employee does not receive the stock ...
  2. Operating Ratio

    A ratio that shows the efficiency of a company's management by comparing operating expense to net sales. Calculated as:
  3. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  4. Pro Forma

    A Latin term meaning "for the sake of form". In the investing world, it describes a method of calculating financial results ...
  5. Trumpcare

    The American Health Care Act, also known as Trumpcare and Ryancare, is the Republican proposal to replace Obamacare.
  6. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
Trading Center