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.

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 >>

4. ### 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 >>
5. ### How do I build a profitable strategy when spotting a Symmetrical Triangle pattern?

Understand the basics of the symmetrical triangle chart pattern including formation and how to use this pattern to create ... Read Answer >>
6. ### How do I implement a forex strategy when spotting a Rounding Bottom Pattern?

Understand the key factors to implementing a profitable forex trading strategy based on recognizing the formation of a rounding ... Read Answer >>
Related Articles

### Watch For These Chart Pattern Breakouts Right Now

These stocks are near chart pattern breakout points, indicating potential trend reversals ahead.
2. Investing

### These ETFs are Breaking Out of Chart Patterns Now

Three buys and one sell; here are four ETFs breaking out of chart patterns right now.

### Inverse Head and Shoulders Patterns Breaking Out

Watch for higher prices if these stocks complete inverse head and shoulders patterns (a bottoming pattern).

### Head and Shoulders Top Forming in These Stocks

Head and shoulders patterns in these stocks indicate lower prices to come.
5. 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.

### Stock Chart Patterns to Keep an Eye On

Some of these stocks are exhibiting big chart patterns, so a breakout is likely to be significant.

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.

### 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. ### 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. ### Double Top And Bottom

Chart patterns in which the quote for the underlying investment ...
Hot Definitions
1. ### Current Ratio

The current ratio is a liquidity ratio measuring a company's ability to pay short-term and long-term obligations, also known ...
2. ### SEC Form 13F

A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
3. ### Quantitative Easing

An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
4. ### Risk Averse

A description of an investor who, when faced with two investments with a similar expected return (but different risks), will ...
5. ### Indirect Tax

A tax that increases the price of a good so that consumers are actually paying the tax by paying more for the products. An ...
6. ### Zero-Sum Game

A situation in which one personâ€™s gain is equivalent to anotherâ€™s loss, so that the net change in wealth or benefit is zero. ...