How to Make 44% Gains on This Trade

It’s a new year — but this “old” pattern could still make you substantial gains in 2012. Here’s how…

Most people’s New Year’s Resolutions lists feature the standard self-improvement plans for 2012: lose weight, quit smoking, and travel more. But as a trader, your list of resolutions should look a little bit different. Today, I want to show you a common setup that you should plan on trading this year.

#-ad_banner-#You may have already heard of the ascending triangle, but it’s worth taking a look at this technical trading pattern from a fresh perspective. Not only is it one of the most common trading setups I come across, it’s also one of the highest probability trades on the market if you approach it correctly.

To fill you in, let me walk you though a real life trade that I recently recommended to my small group of members.

If you weren’t already aware, I run Penny Momentum Trader, an elite-level trading research service that issues specific buy and sell recommendations based on technical analysis. On November 2, a textbook ascending triangle trading setup popped up on my radar. I sent the chart below to my readers, and told them to put Raptor Pharmaceuticals (NASDAQ: RPTP) on their watch list.

You can watch the analysis video that I sent readers by clicking on the image below…

 

 

11-2 Watch List: RPTP from Agora Financial on Vimeo.

As you can see in the chart, an ascending triangle is a trading setup that sports a horizontal resistance level (in this case, $5) and uptrending support. Essentially, as shares bounce between those two key technical levels, they get squeezed closer and closer to a breakout above $5. That breakout is crucial because it tells us that buyers have regained control of the market for RPTP, and absorbed the glut of supply that had held prices below $5 for so long.

It’s important to note that the chart I sent wasn’t a buy signal in and of itself — actual trading signals don’t come when you spot the ascending triangle pattern. Instead, the buy signal comes when the breakout above $5 happens…

In the case of RPTP, that breakout came on November 30, and I sent out a buy alert to PMT readers that morning suggesting that they buy either shares of RPTP, or a specific call option that had a higher risk/reward tradeoff. Our price target was just above the $6 level.

So, how did the trade pan out?

We hit our price target seven days later, on December 7, and I sent off a sell alert. All told, readers had a chance to book gains of 13.4% on shares of RPTP and more than 43.8% gains on the options recommendation — all in just a one-week holding period.

Even though 2011 was a tough trading year, there were opportunities to squeeze profits out of Mr. Market if you knew where to look. In 2012, I expect that we’ll see a similar environment for the early part of the year — that’s why it’s so crucial to be aware of the trading setups that can actually provide your portfolio with gains in this sort of market. The ascending triangle may be a simple setup to spot, but it can offer up some powerful gains.

Watch out for the ascending triangle the next time you’re looking at charts.