There are a number of technical patterns that you can use to determine price targets. In my experience there are four patterns that work really well: Head and Shoulders, Triangles, Rectangle Bases and Swing Trades. All of the following examples will give you examples of upside targets for going long, but the inverse is true if you’re trying to calculate downside targets when going short.
Let’s start with the Head & Shoulders Pattern: To be precise a bullish Head & Shoulders pattern is called a bottom-reversal Head & Shoulders and is inverted from the top reversal head and shoulders. To calculate your price target you take the difference between the bottom of the head and the neck line. Once you come up with that number you add it to the neckline to come up with an upside price target.
The next set of patterns you can use to determine price targets are triangles. There are three types of triangles; Ascending, Descending and Symetrical triangles. The way you determine the price targets are the same for each triangle. You take the distance of the apex of the triangles and add it to the breakout point from the traingle to determine your targets. For shorts you would subtract the distance of the apex to the breakdown. To study further click on the links above as stockcharts.com gives great examples.
The third pattern I want to discuss on how to determine price targets is the Rectangle. Determining the price target for the rectangle is relatively simple. You take the difference between the top and bottom trendlines and add to the breakout for longs or subtract from the breakdown for shorts.
The last targeting method is the swing trade or sometimes called an A,B,C pattern because there are three parts to the pattern. I will only focus on the long side and on how to use this pattern to come up with a target, as I could write an entire blog on swing trading alone. The basic pattern includes the first up move (A), followed by a pullback (B) (this pullback can not go lower than the start of A), then a second leg higher (C). To come up with the upside target you would take the distance of the (A) move and add it to the bottom of the pullback (B). See example as it is better understood visually…
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