The Value of Target Prices

Target prices are a tool that many stock investors use in their daily trading. Target prices provide a way for investors to plan out their trades and to know when to get in and out. Here are the basics of target prices and how they are valuable to investors.

Target prices provide two different functions for investors. First of all, an investor can get target prices from professional stock analysts that give her an idea about which stocks to buy. Secondly, once she owns a particular stock, she can use target prices in order to determine when to get out of a trade. Both of these methods can be extremely effective if used properly.

Stock Analyst Information

If you are going to listen to any information from professional stock analysts, target prices are going to be the best thing to listen to. Many investors get caught up in blanket recommendations from stock analysts. The stock analysts will give general recommendations about a stock, and investors will follow it. The only problem with general recommendations is that they do not apply to your situation specifically. When a stock analyst says to buy a stock, you may have already purchased that stock but need to sell. With target prices, there is no guessing as to what a stock analyst thinks. They are going to provide you with a specific price that lets you know what they believe the stock will get to. If the price of the stock is well below that target price, you may want to consider buying. 

Personal Target Prices

Once you are the owner of a stock, you may decide to use personal target prices in order to determine when to get out of a trade. With a personal target price, you are going to be able to set specific limits for yourself. Many people do not know when to get out of a good trade. Because of that, they often end up riding a trade until it is no longer profitable. With a target price, there will be no guessing, and you can get out as soon as you hit the target price.

With personal target prices, there is not a specific method of calculation. One investor can have a drastically different target price than other. For example, one investor might have a target price for a particular stock of $95 per share. Another investor might decide to choose a target price of $140 per share. The big difference between individual target prices is the risk tolerance that each investor has. One investor might have a large tolerance for risk and be willing to set a high target price, while another may not have much tolerance for risk. 

Regardless of your tolerance for risk, you should know that target prices can be beneficial. Once the price of your stock is at that price, you will close out your trade and take your profit.

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