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Price objectives

Vertical and horizontal counts for estimating how far a move may go.

P&F charts offer two classic ways to estimate how far a move might go: the vertical count and the horizontal count. They're estimates, not promises, but they help you judge whether a trade has enough room to be worth taking.

The vertical count

The vertical count measures the strength of the first thrust off a low (or high).

Bullish vertical count

  1. Find the first column of X's that rises off the low.
  2. Count the boxes in that column.
  3. Multiply by the reversal amount (3) and by the box size.
  4. Add the result to the lowest X in that column.
$40$42$44$46$48$50Count this column: 6 boxes
The first X column off the low has 6 boxes.

In the example, the first X column off the low runs from $42 to $47, which is 6 boxes. With $1 boxes and a 3-box reversal: 6 × 3 × $1 = $18. Added to $42, the price objective is $60.

Bearish vertical count

Mirror the method: count the boxes in the first column of O's that falls from the high, multiply by the reversal and the box size, and subtract from the highest O in that column. Some practitioners use a smaller multiplier for bearish counts, since declines can end abruptly.

The horizontal count

The horizontal count measures the width of a base. The idea is that the longer a stock builds a base, the bigger the move that can follow.

  1. Identify the base: the trading range a stock broke out of.
  2. Count the number of columns across the base.
  3. Multiply by the reversal amount (3) and by the box size.
  4. Add the result to the lowest point in the base.

For example, a base 9 columns wide with $1 boxes and a 3-box reversal: 9 × 3 × $1 = $27, added to a base low of $40, gives an objective of $67.

Using price objectives

  • Compare the objective with the distance to your stop. A trade with $15 of upside to the objective and $3 of risk to the stop offers a far better reward-to-risk ratio than one with $4 of upside.
  • When a stock reaches its objective, it doesn't have to stop. But it's a sensible point to reassess, take some profit or tighten a stop.
  • If counts disagree, the more conservative one is usually the safer guide.

For education only. Nothing here is investment advice or a recommendation to buy or sell any security.