Stock targets are what you use when you enter a trade. It is a price that you think a stock will go. For instance if a stock is trading at $45 and you think it will go to $50, than $50 would be your target.
Do you need to use stock targets? No, but there are benefits to using targets as opposed to not. For one thing when you use targets you know exactly when to get out of your trade. This means that there will be no question. You get out when it hits either your target or your stop (p.s. While not all trades need a target they should all have a stop.)
Setting targets is a good way to be profitable. If you buy a stock at $45 that goes up to $50 you made money. But if you didn't sell that stock and it went down to $42 you lost money. If you had a target at $50 you would have got out at $50.
Now there are a few disadvantages to setting targets. If that stock went up to $60 you would have got out at $50. But then again you still don't know when to sell. Who knows what will happen to your stock in the future? Do you sell at $60 or $65? A target helps you.
Another disadvantage of having a target is, what if your stock misses it? What if your $45 went up to $49 and heads back down to $40? Now your stock barely missed your $50 and had a loss. But you were ahead at some point. You let a profit turn into a loss.
Some traders will try to solve this problem by also making a stop. Maybe they will say if a stock goes down 2 days in a row they will sell it regardless if it hits their target. Others will say that you have to follow your target exactly. They will only sell if you hit either your target or stop.
Now that we got that settled let us look at how to predict targets. You can either take an educated guess or use chart patterns to help you. I prefer chart patterns. The great thing about them is that most chart pattern targets are already figured out and wide spread.
That means if you set a $5 target because the chart pattern tells you to you can be confident that thousands of other traders are doing the same thing. Because supply and demand move the markets you know that is good.
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