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.

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.

Cheers,

Jonas Elmerraji
for The Penny Sleuth

Jonas Elmerraji

A big-four public accounting alum, Jonas Elmerraji brings his readers extensive expertise in small-cap stocks and broad market moves. Elmerraji’s interest in the market started with an investing course in elementary school – today he holds a degree in financial economics from UMBC and specializes in blending fundamental and technical analysis. Elmerraji has contributed to Forbes, TheStreet.com, and Investors Business Daily among others. He is managing editor of the Penny Momentum Trader, and a co-editor of Penny Stock Fortunes.

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