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. 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 >>
  5. 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 >>
  6. What are the differences between patterns and trends?

    Learn the difference between a pattern and a trend. Explore how technical analysts use patterns and trends to identify trading ... Read Answer >>
Related Articles
  1. Trading

    Breakout Stocks to Watch Right Now

    These three stocks are near major breakout points, which will affect the short-term, and potentially the long-term direction of the stocks.
  2. Trading

    Most Commonly Used Forex Chart Patterns

    These chart patterns provide entries, stops and profit targets that can be easily seen.
  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.
RELATED TERMS
  1. Pattern

    In technical analysis, the distinctive formation created by the ...
  2. Continuation Pattern

    A technical analysis pattern that suggests a trend is exhibiting ...
  3. Double Bottom

    A charting pattern used in technical analysis. It describes the ...
  4. Diamond Top Formation

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

    A pattern on a security's chart that results from the daily low ...
  6. Ascending Triangle

    A bullish chart pattern used in technical analysis that is easily ...
Hot Definitions
  1. IRS Publication 970

    A document published by the Internal Revenue Service (IRS) that provides information on tax benefits available to students ...
  2. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  3. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  4. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  5. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  6. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
Trading Center